The Bank of Japan has slashed interest rates to near zero, hoping to stave off a severe recession in the world's second largest economy.
The Bank of Japan joined a wave of rate cuts by central banks around the world amid forecasts that the overall global economy will next year suffer its first contraction in decades.
The BoJ also tried to shore up credit markets by announcing it would start directly buying commercial paper, the short-term debt that companies issue to run their daily operations.
In a 7-1 vote, the Bank of Japan policy board said that it was cutting the benchmark rate of borrowing from 0.3% to 0.1%.
The level is even lower than the top range of 0.25% set this week by the US Federal Reserve, which drastically cut its own rate.
The Bank of Japan, issuing a statement explaining its decision, offered a bleak picture of the economy. 'Financial conditions have deteriorated sharply on the whole,' it said.
The rate cut came hours after Prime Minister Taro Aso's cabinet approved a projection that the economy will post zero growth in the year to March 2010 following recession in the current year.
Japan until 2006 kept rates at virtually zero, a policy now being tried out in the US as it attempts to get out of an economic rut spurred by a credit crunch at major banks.
