COMMENTARY:

HUW MCKAY, SENIOR ECONOMIST AT WESTPAC, SYDNEY

"I think the Bank of Japan is really in an awkward situation. The effectiveness of any loosening in monetary policy in terms of helping their economy is going be extraordinarily limited. I think that's why you see the split vote from the board.

"None of the Bank of Japan board is against stimulating the economy under the current circumstance.

"I don't think they will do anything (on the rate) for a while, what they will do is continue to provide liquidity as they have to.

"They might actually choose to intervene in the currency market to a certain degree, and they will probably choose not to sterilise that activity and leave the funds swashing around the banking system."

NAOMI HASEGAWA, SENIOR FIXED INCOME STRATEGIST, MITSUBISHI UFJ SECURITIES, TOKYO

"The BOJ's rate cut reflects a serious deterioration in the economic outlook, while at the same time public opinion was calling for action from the BOJ in line with global efforts to contain a worldwide financial crisis and recession.

"The rate cut will have a positive impact on the economy as it eases funding costs and could spur corporate activity, while helping to reduce the burden of housing loans for individuals.

"The bond market will keep an eye on the economy and whether stock markets will show signs of recovery."

GLENN MAGUIRE, ASIA PACIFIC CHIEF ECONOMIST, SOCIETE GENERALE, HONG KONG

"This is actually a bad outcome. At a time of extreme financial uncertainty and volatility, to have a policy board so evenly split is hardly reassuring. To put it in context, imagine the volatility and uncertainty if the Fed had half its policy board dissenting against the recent rate cut.

"It clearly shows that there were significant reservations about the usefulness of this move.

"Whatever the desired outcome -- the fact that the board was so evenly split jeopardises that outcome."

YUJI SAITO, HEAD OF FX SALES, SOCIETE GENERALE, TOKYO

"The market had hoped for a 25 basis-point rate cut by a majority vote without taking such a long time. Today's decision may give an impression to foreign investors that the Bank of Japan will not be able to manage rate decision flexibly.

"From foreign investors' viewpoint, it may also give an impression that the BOJ is not cooperating with central banks in major economic zones."

JUNKO NISHIOKA, ECONOMIST AT RBS, TOKYO

"The Bank of Japan wanted to show that the central bank and the government are working together to stabilise markets. It also wants to support Japan's economy, which is under growing pressure from a stronger yen.

"Yet, at the same time, BOJ's policy makers share the view that rate cuts have only limited impact on the real economy and they also want to keep room for further cuts, and that's why I think they made such an incremental cut this time."

MAGNUS PRIM, CHIEF ASIA CURRENCY STRATEGIST AT SEB, SINGAPORE

"It's pretty much expected and in line with measures from other central banks around the world.

"I doubt it will have much impact on the economy, but it may have some impact on sentiment. We don't expect them (Japan) to move back to the zero interest rate policy.

"There have seen so many indicators showing a further deterioration in the Japanese economy and I would still expect a technical recession to materialise next year."

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BACKGROUND

-- The BOJ has joined other central banks in injecting extra funds into the money market to ease the strain of the global credit crunch.

-- But with its benchmark rate at just 0.5 percent, the BOJ has been reluctant to join the global push to cut rates, preferring to keep its powder dry for an emergency in Japan's economy that until now has escaped the worst of the crisis.

-- The BOJ's policy meeting came two days after the U.S. Federal Reserve cut rates by 0.50 percentage point to 1.00 percent.

-- The nine-member board currently has one vacancy.

(Reporting by Tokyo Policy Desk) . ng

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