Divided Bank of Japan Trims Rates as Crisis Bites

A divided Bank of Japan cut interest rates for the first time in seven years on Friday, under government pressure to join the global response to the worst financial crisis in 80 years.

On the vote of the governor after a 4-4 split on the policy board, the central bank trimmed its key interest rate to 0.3 percent from a decade-high 0.5 percent, despite knowing the reduction would have little economic impact as Japan feels the pain from the financial crisis.

The central bank also cut its economic outlook saying the strains in global markets had increased and the world economy faced severe conditions for some time.

The markets had widely expected a cut to 0.25 percent and Yuji Saito, head of fx sales at Societe Generale in Tokyo, said the split decision and smaller cut may send the wrong signal.

"Today's decision may give an impression to foreign investors that the Bank of Japan will not be able to manage rate decision flexibly," he said.

In a sign of political pressure on the central bank to move, Finance Minister Shoichi Nakagawa said earlier on Friday the BOJ must work closely with the government.

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