Since it ended its zero-interest-rate policy in July 2006, the Bank of Japan has sought to normalize interest rates up to a level that matches the nation's economic recovery. Recent increases in land prices also have given the BOJ cause to think that an interest-rate rise is necessary. But the central bank decided last week by an 8-1 vote to keep its key short-term interest rate steady at 0.5 percent in view of a possible worldwide credit crunch related to the brewing financial crisis caused by defaults in U.S. markets for high-risk, high-return subprime mortgages.

Because the BOJ must coordinate policy with the central banks of the United States and Europe to avert global credit contraction, its scenario for a higher interest rate has hit a snag, at least for the time being. The BOJ, for the first time in about six years, had raised the benchmark rate to 0.25 percent in July 2006 then doubled it to 0.5 percent in February 2007.

After the BOJ Policy Board's decision Aug. 23, Gov. Toshihiko Fukui said the Japanese economic recovery has been solid and that the U.S. subprime mortgage crisis's negative impact on the Japanese financial sector will be limited because its exposure to subprime-related securities is relatively small.