October 31, 2008

Japan Interest Rate Cut

The Bank of Japan Friday cut its key interest rate to 0.3 percent from 0.5 percent, the first such cut in seven years, to boost Japan's sluggish economy.

The cut applies to rates on unsecured overnight call money. Central banks of other advanced countries have made similar cut in their key interest rates in the face of the current global financial crisis.

BOJ Gov. Masaaki Shirakawa voted in favor of the cut after the bank's policy board remained split 4-4, Kyodo news service reported.

The bank also approved a number of credit-easing steps such as interest payment on commercial banks' reserves deposited with it to allow for more liquidity into money markets.

The rate cut would also help check the appreciation of the yen against major world currencies. A lower yen helps strengthen Japan's export-driven economy.

Friday's rate cut is the first since March 2001. The prior 0.5 percent rate had remained unchanged for 20 months.

The bank's action comes following the government's 27-trillion yen or $276 billion package to stimulate the economy.