Dec. 20 (Bloomberg) -- The Bank of Japan refrained from raising interest rates in the first unanimous decision since June, after business confidence fell and central banks provided cash to counter a credit squeeze that threatens global growth.

Governor Toshihiko Fukui and his colleagues voted to leave the benchmark overnight lending rate at 0.5 percent, the lowest among major economies, the bank said in a statement today in Tokyo. Atsushi Mizuno rejoined the majority after proposing an increase at each meeting since July.

The Bank of Japan today lowered its assessment of the economy, saying the pace of growth will ``slow for the time being.'' The Federal Reserve, European Central Bank and three other central banks this month pledged extra funds to reduce borrowing costs, in the biggest act of international economic cooperation since the Sept. 11 terrorist attacks.

``They're not really in a position to be putting rates up when everyone else is worried about global growth and global stability,'' said Graham Davis, a director at the Economist Intelligence Unit in Tokyo.

The yen traded at 113.21 per dollar at 3:06 p.m. in Tokyo from 113.28 before the interest rate announcement. Today's rate decision was expected by all 44 economists surveyed by Bloomberg.

Fukui, who last year oversaw the bank's shift from a policy of keeping rates near zero, probably won't be able to increase borrowing costs again before his term expires in March. Of 31 economists surveyed, 21 said the bank will keep the key rate on hold at least until the second half of 2008.

Weak Profits

Weak profits at small companies could hamper wage growth and consumer spending, Fukui said this month. He acknowledged that the benefits of Japan's corporate-led expansion aren't flowing to households as quickly as he'd anticipated.

The government slashed its economic growth forecasts yesterday. The world's second-biggest economy will probably expand 1.3 percent in the year ending March 31, slower than a previous forecast of 2.1 percent, the Cabinet Office said. The economy will grow 2 percent next year, less than the 2.1 percent estimated earlier, it said.

Export growth slowed in November, the Finance Ministry said today, as the U.S. housing recession caused shipments to Japan's biggest market to tumble for a third month.

Confidence at Japan's large manufacturers and service companies fell to the lowest in more than two years, the central bank's Tankan survey showed on Dec. 14. Companies surveyed said costs were rising faster than they could pass on to clients.

2008 Gridlock

``The Bank of Japan will be in gridlock for all of 2008,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. ``We can't completely rule out a rate cut if the central bank's scenario of a positive expansion cycle falters, though it's not our main projection now.''

The ECB this week loaned a record $501 billion for two weeks to banks to bring down borrowing costs at the year's end. Borrowing costs have soared following the collapse of the U.S. subprime-mortgage market.

``Financial-market volatility will probably increase from now on,'' said Teizo Taya, a former central bank policy maker and now an adviser at the Daiwa Institute of Research. ``A rate hike would be possible if U.S. and European markets calm down and a U.S. revival becomes foreseeable, but the chances of that are becoming pretty remote.''

The Bank of Japan raised the key rate from near zero percent in July 2006, the first increase in almost six years, amid signs the economy was emerging from deflation. Fukui has said Japan's borrowing costs need to rise to prevent excessive investment and help to sustain economic growth. He repeated the argument in a Dec. 3 speech.

``There's no way that Fukui has completely given up on a rate hike during his term, and he's probably trying to believe there's still a chance,'' said Jun Ishii, chief fixed-income strategist at Mitsubishi UFJ Securities Co. in Tokyo. ``He may reveal that view at his press conference.''

Fukui will speak to reporters at 3:30 p.m.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Last Updated: December 20, 2007 01:09 EST