Tokyo: The Bank of Japan cut its super-low interest rates for the first time in seven years as central banks worldwide step up the fight against the worst financial crisis in decades.
The Bank of Japan (BoJ) reduced its key lending rate by 20 basis points to 0.30% as part of its efforts to calm volatile markets and ward off a deep recession in Asia’s largest economy.
The monetary policy board was evenly split on whether to lower interest rates, so the final decision was taken by governor Masaaki Shirakawa.
“Adjustments in the world economy stemming from financial crises in the United States and Europe have further increased in severity,” the bank said in a statement.
“Increased sluggishness in Japan’s economic activity will likely remain over the next several quarters with exports levelling off and the effects of earlier increases in energy and materials prices persisting,” it added.
The BoJ also decided to start paying interest on commercial bank reserves held on account as part of efforts to ease pressure in the money market.
It was the first interest rate cut by the Japanese central bank since March 2001, when it introduced an unprecedented policy of almost free credit to try to pull the economy out of the deflationary doldrums.
The Japanese economy shrank in the second quarter of this year and there are increasing fears that it is once again in recession, which is usually defined as two straight quarters of economic contraction.