Masaaki Shirakawa, governor of the Bank of Japan, has warned of continuing "downside risks" to the world's second-largest economy in remarks that will keep alive slim expectations of a rate cut later this year.

After a policy meeting yesterday when the central bank kept overnight rates at 0.5 per cent, Mr Shirakawa, said: "I am closely watching possible downside risks from the economy's weakening capacity to generate income, which could hurt domestic demand."