Worries about slower economic growth at home and in the U.S. — Japan's biggest export market — are likely to keep the Bank of Japan from changing interest rates at a two-day Policy Board meeting that started Tuesday.
Before problems in the U.S. mortgage market emerged over the summer, investors expected the BOJ to raise the key overnight call rate, now at a relatively low 0.5 percent.
But expectations for a hike have dwindled dramatically as U.S. credit woes have rattled global markets and prompted concerns that it would drag on U.S. economic growth and weaken demand for autos, gadgets and other exports.
Domestically, there are persistent signs of deflation, with July's core consumer price index falling 0.1 percent, the sixth straight monthly drop. And last week the government said the economy contracted in the April-June quarter at an annual rate of 1.2 percent, reversing its initial estimate for a 0.5 percent growth.
Also, the world's central banks like to show they are working together to maintain global stability, and the BOJ would find it hard to raise rates at a time the U.S. Federal Reserve is cutting them.
The Fed cut its discount rate — its charge on loans to banks — by a half percentage point to 5.75 percent last month to try to stabilize U.S. and global markets. It was widely expected to reduce another benchmark rate, the federal funds rate, by at least a quarter point to 5 percent when it met later Tuesday.