Bank of Japan to Reduce Key Interest Rate to 2.5%

The Bank of Japan announced today that it will reduce its key interest rate to an all-time low of 2.5%, a move the central bank chief called a “severe choice.”

The bank’s Policy Board decided at a special meeting this afternoon to cut the discount rate--the interest the central bank charges on loans to commercial banks--by 0.5 of a percentage point effective Monday, bank officials said.

The move marks the fifth time since the beginning of last year that Japan has reduced its discount rate in attempts to stimulate the country’s economy by making borrowing more attractive and slow the rise of the Japanese yen.

At a news conference following the announcement, bank Governor Satoshi Sumita said the decision, which he called a “severe choice,” came after a consideration of various factors. But he stressed that exchange rate stability was the paramount consideration.

At the meetings of finance officials of the so-called Group of Five and Group of Seven in Paris this weekend, Sumita said, he will stress that the cutback demonstrates Japan’s desire for international cooperation to stabilize exchange rates and work toward sustained growth of the world economy.

The Group of Five consists of Britain, France, Japan, the United States and West Germany, while the Group of Seven also includes Canada and Italy.