The Bank of Japan today lowered its forecasts for growth and inflation this year, and held interest rates steady, but maintained its view that the country's economy was likely to continue its sustained expansion.

At its monetary board meeting, Japan's central bank kept the overnight call rate target unchanged at 0.5 per cent, as widely expected, reflecting the growing risk of economic slowdowns in the US and Japan hence continued uncertainty in financial markets.

In its outlook report, a semi-annual report on the economy and prices, Bank of Japan cut its forecast for real gross domestic product growth for the year to march 2008 from 2.1 per cent in April to 1.8 per cent from 0.2 per cent.