UPDATE 1-BOJ focus on downside risks, hike seen further off

(Adds Muto comments, details)

By Leika Kihara

TOKYO, Nov 16 (Reuters) - The Bank of Japan's deputy governor warned that U.S. housing woes could damage the Japanese economy while bank minutes issued on Friday showed downside risks dominated a recent rate review meeting, reinforcing views that the next BOJ rate rise will not come until well into next year.

BOJ Deputy Governor Toshiro Muto -- considered the front-runner to succeed Governor Toshihiko Fukui next March -- told Bloomberg that further U.S. housing slowdown and market turmoil could hurt Japan's economy and make it difficult to decide when to raise interest rates.

The remarks pushed out expectations of the next rate increase beyond Fukui's retirement date, with swap contracts based on Japan's main policy rate only suggesting about a 35 percent chance of a rate hike by March, deepening a slide from around a 55 percent chance priced in last week. <JPONIBOJ=TRDT>

Combined with Japanese stock price falls, they helped push the 10-year Japanese government bond yield to a 22-month low of 1.460 percent. <JP10YTN=JBTC>

"We must examine both upside and downside risks carefully," Muto said in a Bloomberg interview conducted on Thursday. "This is quite a difficult situation."

Muto's comments came after Fukui said late on Thursday that the U.S. housing problems were a risk to global growth. [ID:nSIN278349]

Minutes of the BOJ's Oct. 10-11 meeting released on Friday signalled that this cautious view was shared by most of the nine members of the central bank's rate-setting policy board.