Japan cuts rates amid credit crunch

Published: Friday, 31 October 2008, 10:18AM

Japan has cut interest rates for the first time in seven years and warned severe conditions in the global economy could persist.

The Bank of Japan cut the call rate to 0.30 per cent from 0.50 per cent following the US Federal Reserve's cut earlier in the week.

The reduction is slighly smaller than the quarter point drop many had expected and a 4-4 vote on the Bank of Japan's policy board meant the central bank governor had to cast the deciding vote.

Japan's Nikkei closed down 5 per cent on disappointment at the size of the interest rate cut and Asian shares are set to post their worst month ever.

Glenn Maguire, Asia Pacific chief economist with Societe Generale in Hong Kong, said: "At a time of extreme financial uncertainty and volatility, to have a policy board so evenly split is hardly reassuring.

"Whatever the desired outcome - the fact that the board was so evenly split jeopardises that outcome."

The rate reduction was the latest in a series of rate cuts globally as central banks move rapidly to try to cushion growth now that interbank lending rates have been consistently falling.

Japan also unveiled a £15 billion economic stimulus package earlier this week.

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