Japan's economy downgraded

Japan's central bank downgraded its assessment of Asia's largest economy Tuesday, warning growth will remain "sluggish" as it left its super-low interest rates unchanged amid growing fears of a recession.

The unanimous decision to leave the benchmark rate unchanged at 0.5 percent had been widely expected after the economy contracted in the second quarter of 2008, leaving Japan teetering on the brink of recession.

At the same time inflation hit the fastest pace in a decade in June, creating a dilemma for the central bank, which would like to rein in soaring prices but fears that higher borrowing costs would squeeze the economy.