Japan cuts interest rate further

image captionDeflation in Japan is causing considerable concern

Japan's central bank has cut its benchmark interest rate to almost zero as it tries to stimulate the county's faltering economy.

Rates had been held at 0.1% since the end of 2008, but have now been trimmed further.

Falling prices and the strong yen - which eats into the value of overseas earnings for Japanese exporters - have hit the economy.

The bank said it would maintain near-zero rates until prices stabilised.

A "near-zero" policy means that the rate moves within a small range between 0% and 0.1% - though no fixed rate is set.

'Bold move'

"Although Japan's economy still shows signs of moderate recovery, the pace of recovery is slowing down partly due to the slowdown in overseas economies and the effects of the yen's appreciation on business sentiment," the Bank of Japan said.

Markets had not been expecting the rate cut.

"It was an utterly surprising and bold move. The bank has sent a favourable message to the markets, which had been expecting it to take only small, gradual steps," said Sieji Shiraishi at HSBC Securities.

He did, however, question the impact the rate cut would have.

"The bank's move is unlikely to impact the overall economy much, even though the yen weakened briefly, as the root of the problems lies in the weakness of the US economy."

The bank also said it would consider pumping money into the economy in an attempt to stimulate demand.

More on this story

Related Internet Links

The BBC is not responsible for the content of external sites.