BOJ Cuts Key Rate to 0.1%, Pumps Funds Into Economy

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The Bank of Japan cut its benchmark interest rate to 0.1 percent and said it would buy corporate debt as a deepening recession chokes off funding for businesses.

Governor Masaaki Shirakawa and his colleagues lowered the target for the overnight lending rate from 0.3 percent in a 7- to-1 vote, the central bank said in a statement today in Tokyo. The bank said it would buy commercial paper temporarily and a decision to increase its monthly purchases of government bonds sparked a rally in the market.

The central bank’s second reduction in two months came after the Federal Reserve this week cut its target rate as low as zero, driving the yen to a 13-year high against the dollar. The Bank of Japan’s move to buy corporate debt is designed to ease the cost of borrowing for Japanese companies struggling to obtain financing amid a global credit crunch.

“Whereas the Fed is dramatically expanding its balance sheet to offer support to financial institutions, the Bank of Japan is now expanding its balance sheet to support the corporate sector,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong.

The yen traded at 89.17 per dollar as of 2:56 p.m. in Tokyo from 89.28 shortly before the decision. Bonds rose, reversing earlier declines, sending the yield on the 10-year bond down 3.5 basis points to 1.225 percent. The Nikkei 225 Stock Average slid 0.9 percent and has lost 44 percent this year.

From Bloomberg News.