The Bank of Japan this week will probably keep borrowing costs at almost zero to counter a five-year bout of deflation and protect a recovery in the world's second-largest economy from a strengthening yen, economists said.

　　Governor Toshihiko Fukui and his eight policy board colleagues will also keep monthly purchases of government bonds from lenders at 1.2 trillion yen (US$11.4 billion) at a two-day meeting ending tomorrow, said 14 of 15 economists surveyed by Bloomberg News. The bank will announce its policy decision tomorrow.

　　The bank last month unexpectedly decided to pump more cash into the economy, which may help slow the yen's 14 percent gain against the dollar the past year, by raising the upper limit of its target for reserves available to lenders. Fukui said the yen's strength could become a "downside risk" to Japan's economy, which he described as recovering at a moderate pace.

　　"The bank will stand pat this time and basically keep the same stance the next three months," said Yasunari Ueno, chief market economist at Mizuho Securities Co Ltd. "However, it's fully possible that a further rise in the yen will prompt the bank to act again."

　　In Australia, central bank policymakers are also watching a strengthening currency. The Reserve Bank of Australia may keep its benchmark interest rate unchanged following two increases last year because the Australian dollar's advance threatens to cut export returns, economists said. The currency has risen 3.2 percent against the US dollar since December's rate increase.

　　Eighteen of 23 economists surveyed by Bloomberg forecast the central bank to leave the overnight cash rate target unchanged at 5.25 percent when it meet yesterday. Five analysts forecast a quarter percentage-point increase. The decision is to be announced this morning in Sydney.

　　The Bank of Japan lowered interest rates to almost zero in March 2001 and has pledged to keep them there until core consumer prices, which exclude fresh food, stop falling for at least a few months and the bank is sure they won't fall again. Core consumer prices were unchanged in December from a year earlier and fell 0.3 percent in 2003, declining for the fifth straight year.

　　The yen has advanced 1.6 percent against the dollar this year even though Japan sold 7.15 trillion yen from December 27 through January 28, a record amount for a single month, and a record 20.1 trillion yen last year through December 26.

　　Exports accounted for two-thirds of Japan's 1.4 percent annualized third-quarter economic growth. A stronger yen makes Japanese goods more expensive overseas and reduces the value of profits at exporters such as Canon Inc and Nissan Motor Co when converted into the yen.

　　"Japanese companies expect the dollar to be traded between about 105 yen and 110 yen in this fiscal year" ending on March 31, Hiroshi Okuda, head of the Japan Business Federation, said last week.

　　"I would want the government to continue intervening in the market to maintain these ranges," said Okuda, who is also the chairman of Toyota Motor Corp Japan's biggest automaker said it expects the dollar to average 112 yen this fiscal year.

　　The yen traded at 105.55 yen to the dollar yesterday afternoon in Tokyo, from 105.62 yen late Monday in New York.

　　The central bank last month raised the upper limit of its target for reserves available to lenders by 3 trillion yen to 35 trillion yen.