The Bank of Japan (BOJ) cut its key interest rate to 0.1 percent from 0.3 percent Friday with an aim of boosting the faltered economy amid worsening global economic crisis.
The BOJ's eight-member Policy Board voted by 7-to-1 to lower the target rate for unsecured overnight call money for the second time this year. It also decided to lower the basic loan rate from 0.5 to 0.3 percent.
The panel lowered the key interest rate to 0.3 percent from 0.5percent on Oct. 31 in its first rate reduction since March 2001.
BOJ explained the decision in a statement on its website, describing the economic conditions have been "deteriorating and are likely to increase in severity for the immediate future".
"Given the slowdown in overseas economies and the turmoil in global financial markets, it will likely take some time for the necessary conditions for Japan's economic recovery to be satisfied," according to the statement.
The central bank also decided to temporarily purchase outright commercial paper, or short-term debt issued by companies, in an effort to facilitate corporate financing at a time when firms are facing difficulty raising operating capital through financial markets.
The BOJ also said it will increase its outright purchases of Japanese government bonds to supply long-term funds and boost liquidity in capital and corporate debt markets.
Japan's benchmark Nikkei stock index jumped after the rate cut but the rise was short-lived as the rate cut was largely in line with market expectation. The yen also only modestly edged up against the dollar.
"I heartily welcome the BOJ's judgment, which was made after the bank seriously examined the current economic and financial conditions," Japanese finance minister Nakagawa said, quoted by Kyodo News.
He said the central bank's move to purchase commercial paper, or corporate short-term debt, outright and to boost its buying of long-term Japanese government bonds is in line with the government's policy of providing ample liquidity.
"The government and the BOJ share the same goal. We are doing what we should do as an 'all-Japan' team," Nakagawa said.
The Japanese central bank has been under increasing pressure to cut the key interest rate, especially after the U.S. Federal Reserve decided Tuesday to, in effect, cut its main interest rate to zero percent.
The dollar fell to a 13-year low against the yen this week after the U.S. rate cut, as many investors dumped the dollar for yen and other currencies.
An appreciating yen hurts Japanese exports as it capped companies profits when converted into yen. Japan's economy relies heavily on export.
"The Bank will continue to do its utmost as a central bank to facilitate the return of Japan's economy to a sustainable growth path with price stability," BOJ's statement said.
BOJ governor Masaaki Shirakawa also said in a press conference held later in the day that there is possibility for further cuts, and he confirmed a surging yen was among the reasons for the rate cut.
Source: Xinhua
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