Prime Minister Shinzo Abe attended the annual Nagasaki Peace Ceremony held at Peace Park, Nagasaki City, on Thursday, August 9, 2007.

Japan's economic growth almost stalled in the second quarter, making it unlikely that the Bank of Japan will raise its key interest rate at its Aug 22-23 meeting to 0.75 per cent - the highest level since 1995 - from 0.50 per cent. The global credit crunch also lends support to this view.

The world's second-largest economy grew at a 0.5 percent annualized rate in the three months ended June 30th from a revised 3.2 percent in the first quarter, the Cabinet Office said today in Tokyo.

The Bank of Japan injected ¥600 billion yen ($5.1 billion) into the banking system today after adding 1 trillion yen on Friday. Last week, Central banks in the U.S., Europe, Japan, Australia and Canada, responding to a global credit crunch related to the subprime mortgage crisis in the US, added $136 billion to the liquidity of their banking systems.

The Japanese economy grew 0.3 percent in nominal terms, which don't take into account price changes, the Cabinet Office said.

The GDP deflator, a guage of price changes, fell 0.3 percent from the same period a year earlier. The domestic demand deflator, viewed by economists as key measure of price trends, rose 0.2 percent, the third increase in the past nine years.

Declining payroll costs are reducing inflationary pressure. Consumer prices excluding fresh food dropped 0.1 percent in June from a year earlier, a fifth monthly drop.

On Friday, the government reported that Japanese retail sales fell 0.4 per cent in June from a year earlier. Compared with May, retail sales were down 0.8 per cent on a seasonally adjusted basis, the Ministry of Economy, Trade and Industry said.

The main reason for the decline in retail sales was a fall in sales in the motor industry, down 7.4 per cent from a year earlier and the biggest decline in that sector for five years.

Japanese domestic car sales have been falling for 15 months and in March, fell to a 30-year low.