(Agencies)
Updated: 2007-10-16 17:05

Japan's economy will keep growing, though global financial markets remain volatile following the US housing slump, central bank Governor Toshihiko Fukui said.

"It's highly likely that Japan will achieve long-lasting economic growth," Fukui said yesterday at a quarterly meeting of the Bank of Japan's regional branch managers in Tokyo. Still, "there are some uncertainties in the global economy, such as downside risks for growth in the United States".

Fukui reiterated that the central bank will "implement monetary policy appropriately by closely examining economic and price data". He used the same language to describe the bank's policy stance at the previous meeting of regional heads in July.

"While the economy maintains a moderate expansion, the chance that the Bank of Japan will have to hold a wait-and-see stance is rising, with the credit market dysfunctioning and the downside risks for the US increasing," said Junko Nishioka, a senior economist at ABN Amro Securities Japan Ltd in Tokyo.

The central bank last week kept the benchmark overnight lending rate at 0.5 percent, the lowest in the industrialized world, as policymakers sought more time to assess the effect of the US subprime-mortgage crisis on global economic growth.

Eleven of 31 economists surveyed by Bloomberg News forecast a rate increase by the end of the year. The bank last raised the key rate in February.

"We must continue to carefully monitor global financial and capital markets as well as the world economy," the governor said.

The world's second-largest economy is expanding moderately, fueled by exports and corporate investment, Fukui said. Consumption is also solid as workers' incomes are increasing gradually, he added. Factory output is "on a rising trend".

Export growth accelerated, industrial production climbed to a record and wages rose for the first time this year, data for August show, suggesting the economy will rebound from a second-quarter contraction.

The Bank of Japan's quarterly Tankan business confidence survey this month showed the country's largest companies plan to increase spending on plant and equipment in the year ending March 31.

Fukui said he expects consumer prices to rise "over the long term" after hovering around zero "for some time". Last week he said prices will resume gaining "before long".

Consumer prices excluding fresh food fell 0.1 percent in August, a seventh monthly decline.