Agence France-Presse .

Tokyo Japan's economic growth is set to slow for now, but the impact of the troubled US housing sector on the Japanese economy is limited, Bank of Japan governor Toshihiko Fukui said Tuesday.

'The Japanese economy is slowing for the time being but it is expected to continue its moderate expansion subsequently,' the governor said in a speech at the quarterly meeting of Bank of Japan branch managers. Fukui said the near-term slowdown would be mainly due to stagnant investment in the housing industry following the introduction of stricter earthquake resistance standards. Japan, one of the most quake-prone nations, tightened regulations in June after an architect caused a nationwide scandal by using fabricated data to put up buildings that could collapse during even a moderate tremor.

Fukui also said companies were cautious about their business activities amid high prices of raw materials such as crude oil, although exports remained strong and private consumption was still sustainable. 'The impact of the subprime loan issue on our country's financial organisations is bigger than originally expected,' Fukui said. 'However, the involvement in the credit market of our country's financial organisations is smaller than that of US and European financial institutions,' Fukui said.

'So far, we project losses will be absorbed by the business strength and earnings capacity at each financial institution,' he said. 'Therefore, we don't forecast this problem will greatly affect the stability of our country's financial system,' he added. Global markets have been battered since last year by rising defaults by subprime, or high-risk, US homeowners given loans during the housing boom. The turmoil has raised concern of a credit crunch as banks try to contain losses.

Fukui was tight-lipped on when the central bank would again lift interest rates. 'The Bank of Japan will continue contributing to the realisation of sustainable growth under stable prices, through implementation of appropriate monetary policy with a close examination of the economic and price situation,' he said. Japan has the lowest interest rates of any major economy, a legacy of years of deflation and recession.

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