Before problems in the U.S. mortgage market emerged over the summer, investors had anticipated the central bank to raise the key overnight call rate, now at a relatively low 0.5 percent.

But expectations for a rate hike have dwindled dramatically as U.S. credit woes have rattled global markets and prompted concerns that it would drag on U.S. economic growth and weaken demand for Japanese autos, electronics and other exports.

Domestically, there are persistent signs of deflation, with July's core consumer price index falling 0.1 percent, the sixth straight monthly drop. And last week the government said the economy contracted in the April-June quarter at an annual rate of 1.2 percent, reversing its initial estimate for a 0.5 percent growth.

Also, the world's central banks like to show they are working together to maintain global stability, and the Bank of Japan would find it hard to raise rates at a time the U.S. Federal Reserve is cutting them.

The Fed cut its discount rate --its charge on loans to banks -- by a half percentage point to 5.75 percent last month to try to stabilize U.S. and global markets. It is widely expected to reduce another benchmark rate, the fed funds rate, by at least a quarter point to 5 percent when it meets later Tuesday.

Japan's finance minister on Tuesday played down the U.S. credit problems but urged caution from the Bank of Japan.

"I don't think that's having any serious impact," Finance Minister Fukushiro Nukaga told reporters, adding that he is expecting the central bank to weigh in the overall economy and support growth through monetary policy.

The Bank of Japan last raised interest rates in February.