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TOKYO -- Sharp declines in stock prices may force the Bank of Japan to delay the end of its five-year-old policy of 0% interest rates, giving the Japanese economy more time to benefit from rock-bottom lending rates.

Higher Japanese interest rates could have a big effect on world financial markets as many global investors have borrowed cheaply in Japan to invest in higher-yielding assets elsewhere, a technique known as the "carry trade." In Japan, higher rates would increase the price of borrowing for companies and make mortgages more expensive for home buyers, both of which might damp economic growth if they went too far.

Only a month ago, as Japan's economy grew healthily and domestic prices rose steadily, some economists were predicting the central bank would abandon this extraordinary policy as early as this month. But with the country's stock market plunging to nearly seven-month lows, most economists have written off June for a possible rate raise, and an increasing number think the central bank may stick to zero rates until August or even September.

A delay looked even more likely yesterday after the Nikkei Stock Average of 225 companies tumbled 614.41 points, or 4%, to 14218.60. That was the largest single-day point decline for the Nikkei average since Sept. 12, 2001, the day after the terrorist attacks in the U.S. The benchmark has dropped 15% over the past month.

The Bank of Japan is concerned that its 0% interest rate might lead to overheating prices if it is left in place for too long. The bank also wants to "normalize" its policy.

The measure was adopted as an emergency in 2001, when Japan was suffering from deflation -- a sustained period of falling prices that hampered economic activity and acted as a brake on growth. To encourage bank lending and spark economic activity, the central bank reduced its policy rate -- the rate banks charge one another for overnight loans -- to zero. But Japan's economy has been growing steadily since 2002, and consumer prices began rising consistently at the end of last year. These trends prepare the ground for an initial rise in interest rates by a quarter percentage point.

The Tokyo stock market's recent weakness is primarily caused by uncertainty about the U.S. economy, in particular whether the Federal Reserve will continue its series of rate rises. The Japanese fear this might cause a slowdown in the U.S. and damp demand for Japanese exports. These have enjoyed robust earnings in recent years and have boosted the Japanese economy.

Unlike in the U.S., where the Fed might feel compelled to raise rates to hold down inflation, Japan has less worry about prices taking off. The consumer-price index rose just 0.4% in April, well within the range of 0% to 2% that the central bank announced in March as its target for price stability.

At a two-day policy-board meeting that starts today, the central bank is widely expected to leave the overnight call rate near zero and to provide little indication of when it will raise rates.

In a comment widely interpreted to mean the Bank of Japan wasn't flustered by the stock market, BOJ Deputy Governor Kazumasa Iwata said the recent share-price falls were due to investors selling after taking on too much risk. "I believe [the market] will find a new equilibrium and stability shortly," he said.

A majority of economists still think a rate rise is likely next month, but that could change if financial markets deteriorate further. The BOJ "has said stock prices are not a factor," said Masuhisa Kobayashi, chief Japanese-government-bond strategist for Barclays Capital. "But with the markets going down as sharply as they are, a rate hike will be difficult."

What is more, the central bank faces increasing pressure from politicians to keep the zero-rate policy. Some are worried a rate rise might hurt the economy, as a premature rise did in 2000.