Bank of Japan cuts key interest rate

Japan's central bank has cut its key interest rate for the first time in more than five years.

Japan's central bank has cut its key interest rate for the first time in more than five years.

The Bank of Japan has decided to cut its official discount rate to 0.35% from 0.5% - the first such cut since September, 1995.

The bank has long maintained a monetary policy to keep the economic recovery going.

In August, it raised its overnight call rate - the rate banks charge each other for overnight funds in the Tokyo money market - for the first time in 10 years. Although some politicians criticised this rate rise as a mistake, the bank has decided to keep it unchanged at 0.25%.

The cut in the official discount rate, although largely symbolic, is likely to be seen by financial markets as a sign that the bank stands ready to further ease monetary policy if the economy worsens.

Economic Minister Taro Aso says the rate cut shows the bank's policy is becoming closer to that of the political leadership.

News of the rate cut sent the US dollar higher against the yen, rising above 117 yen. Ahead of the rate cut, the dollar had settled at 116.58 yen at 5pm (0800 GMT) in Tokyo, up 0.24 yen from yesterday but below its overnight level of 116.62 yen in New York.

Falling interest rates tend to lower the value of a nation's currency.

Worries about the Japanese economy grew after the government said yesterday that it shrank by 0.6% in the July-September quarter, revising its previous announcement in December that the economy had grown by 0.2%.

The announcement has stirred up worries that Japan may not meet its target of 1.2% growth for this fiscal year.

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