TOKYO - JAPAN'S central bank said on Friday it had left its key interest rate unchanged at 0.3 per cent, three weeks after reducing borrowing costs for the first time in seven years to tackle the recession.

'The outlook remains highly uncertain and given the slowdown in overseas economies and the turmoil in global financial markets, it will likely take some time for the necessary conditions for Japan's economic recovery to be satisfied', the Bank of Japan said in a statement.

'Economic activity has been increasingly sluggish due to the effects of earlier increases in energy and materials prices and the decrease in exports, and this situation will likely persist over the next several quarters', it said.

The decision by the monetary policy board to hold rates steady was unanimous.

Japan confirmed this week that its economy had entered a recession for the first time in seven years, dragged down by weak exports and lower business investment.

Last month, the BOJ cut its key interest rate by 20 basis points, the first reduction since March 2001, when it introduced an unprecedented policy of almost free credit to try to pull the economy out of the deflationary doldrums.

Markets had not expected a further reduction this month, after Bank of Japan governor Masaaki Shirakawa warned about the risks of very low borrowing costs.