Japan's central bank has left interest rates on hold and cut its forecast for growth amid concerns about rising costs and signs of an economic slowdown.
The Bank of Japan voted to keep the benchmark rate at 0.5% - the same level it has been at since February 2007.
At the same time it lowered its economic growth forecast for the year to March 2009 to 1.2% from 1.5%.
Soaring gas and food prices and rising material costs are weighing on the world's second-largest economy.
There are also worries that Japan's heavy dependence on exports means it is vulnerable to the slowdown in the US.
"Economic growth is slowing further reflecting weaker growth in business fixed investment and private consumption against the backdrop of high energy and material prices," the BoJ said.
"With regard to risk factors, global financial markets remain unstable and there are downside risks to the US and the world economy," it added, saying that global inflationary pressure was increasing.
The BoJ said that growth in 2009/10 would be 1.5%, compared with 1.7% in April.
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