TOKYO - JAPAN'S central bank chief warned on Friday that uncertainties were growing in the world's second largest economy in light of a downturn in the US economy.

But Bank of Japan governor Toshihiko Fukui also expressed confidence that the country's extended recovery from recession would continue due to strong performances by corporations.

'A slowdown of the US economy is intensifying, while global financial and capital markets continue to be unstable,' Mr Fukui told a parliamentary committee.

While the Bank of Japan is mostly anticipating sustained growth and stable prices, 'we will also consider such increased uncertainties and make appropriate policy decisions,' Mr Fukui said.

Japan's economy grew at a 3.7 per cent annualised pace in the fourth quarter of 2007, twice as fast as expected. But analysts warn that a slowdown is inevitable due to the chilly global economic climate.

The United States has been hit hard by rising defaults by 'subprime' customers who received housing loans despite bad credit histories.

Prices of oil and other raw materials have also recently soared to record highs.

The European Commission on Thursday sharply cut its 2008 growth estimate for the 15 countries in the eurozone to 1.8 per cent from 2.2 per cent.

Mr Fukui has repeatedly warned of tepid growth in the near-term due to declining investment in housing after Japan tightened construction rules following a scandal over buildings that could not withstand earthquakes.

But the central banker said corporate Japan had an underlying appetite for hiring new workers.

'Japan seems to have stronger resilience against external shocks than previously,' Mr Fukui said.

'Thus, I continue to believe that the chances are high that a gradual recovery will be sustained.'

Mr Fukui steps down next month after a five-year tenure in which he is largely credited with helping pilot Japan out of its long slump. -- AFP

Is this article useful to you?