TOKYO - JAPAN'S economy is expected to remain stagnant for a while as a global economic slowdown weighs on exports, the country's central bank chief said on Monday.

Corporate earnings in Asia's largest economy are shrinking and companies are cutting their capital investment, Bank of Japan governor Masaaki Shirakawa told a meeting of the central bank's branch managers.

'The economy of our nation is currently stagnant due in part to slower exports stemming from the lingering effects of high energy and material prices and a slowdown in overseas economies,' he said.

Business confidence remains cautious while consumption has turned softer due to inflation and sluggish wages, Mr Shirakawa said.

'Looking ahead, it is highly probable that the economy will remain stagnant as it has become clear that overseas economies continue to slow down,' he said.

Japan's economy suffered its worst contraction in seven years in the second quarter of this year and many analysts believe it is already in recession, which is usually defined as two straight quarters of negative growth.

Mr Shirakawa said, however, that the Japanese short-term money market was more sound than those of the US and in Europe.

'The Bank of Japan will continue our efforts to secure the stability of financial markets,' he said.

Japanese banks have been less severely hit so far by the global financial crisis compared with many of their Western peers. -- AFP