Bank of Japan cuts interest rate to 0.3%

The Bank of Japan has cut the country's interest rate for the first time in seven years to 0.3 per cent after a split vote.

Japan cut the rate from 0.5 per cent in response to the global turmoil, following a half per cent cut from the US Federal Reserve earlier in the week.

The bank said the move was "necessary" following an increase in severity in the financial crisis.

The country's stock market and currency, the yen, have been tumbling as the crisis deepens, putting pressure on the central bank to make further interest cuts.

However, markets were disappointed with the size of the cut and the Nikkei closed five per cent down.

Analysts had predicted rates would be halved, to 0.25 per cent.

The eight-strong monetary policy committee was split down the middle on the vote, with the chairman forced to step in to make the final decision.

The committee also predicted inflation would start to fall soon, reflecting a decline in commodity prices.

Both the Bank of England and the European Central Bank are expected to announce interest rate cuts next week.