The Bank of Japan (BOJ) has reluctantly joined its international central bank counterparts with a 20 basis point cut, which leaves the key policy interest rate at just 0.30 per cent.

The cut reflects growing concern that the Japanese economy may have tumbled into recession and follows a half-point rate by the US Federal Reserve earlier this week.

A rapid surge in the value of the yen has hammered corporate profits, and a global downturn in consumer spending is expected to take a heavy toll over coming months.

The BOJ's decision follows the announcement of a giant emergency stimulus package for the Japanese economy, including efforts to prompt a consumer revival by effectively put cash in the hands of households and cutting some taxes.

Tokyo dealing floors responded badly to the rate cut with the Nikkei 225 plunging 453 points in the last half hour of trading. Shares have surged by more than 20 per cent this week after touching 26-year lows on Monday and many took the rate decision as an excuse to take profits ahead of the three-day weekend.

The lowering of rates is, however, expected to bring stability to the yen, which dropped to the Y98 level against the US dollar moments after the central bank’s decision was announced.

The move dramatically reverses recent attempts by the BOJ to normalise its interest rates after their long stint at nearly zero: that ultra-low rate policy was roundly decried by orthodox economists, and the BOJ was forced to fight a damaging political battle to persuade the country that borrowing should have a cost.

Yesterday’s decision to cut rates — viewed by private sector analysts and senior official of Japan’s Finance Ministry as ineffective and unnecessary — was the country’s first since 2001. The extremely rare 4-4 split among members of the BOJ's policy board had to be decided by Masaaki Shirakawa, the bank’s governor.

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