TOKYO, Oct 31 (Reuters) - The Bank of Japan cut interest rates for the first time in seven years, lowering them to 0.30 percent from 0.50 percent on Friday, joining a global wave of rate cuts to contain the financial crisis.

Following is the text released by the BOJ on its decision: Adjustments in the world economy stemming from financial crises in the United States and Europe have further increased in severity. Under these circumstances, increased sluggishness in Japan's economic activity will likely remain over the next several quarters with exports leveling off and the effects of earlier increases in energy and material prices persisting. As for prices, consumer price inflation is likely to decline gradually reflecting the recent fall in commodity prices, although it remains relatively high to date. The outlook for economic activity and prices is attended by increased downside risks to economic activity but also by decreased upside risks to inflation relative to the recent past.

The Bank, while strains in global financial markets have mounted, has undertaken various prompt and decisive measures in providing liquidity, bearing in mind that the most important contribution a central bank can make in this situation is to ensure stability in financial markets. In addition, at the Monetary Policy Meeting held today, the Bank judged that a reduction in policy interest rates and a further increase in the flexibility of monetary market operations were necessary to maintain accommodative financial conditions.

Respective decisions are as follows.

1. Change in the guideline for money market operations ( decided by the chairman's final decision after a split vote)

Lower the Bank's target for the uncollateralized overnight call rate by 20 basis points and encourage it to remain at around 0.3 percent, effective immediately.

2. Change in the basic loan rate (decided by a unanimous vote)

Lower the basic loan rate applicable under the complementary lending facility by 25 basis points to 0.5 percent (effective immediately).

3. Introduction of Complementary Deposit Facility (decided by a unanimous vote)

To ensure stability in money markets, a temporary measure will be introduced to pay interest on excess reserve balances in order to further facilitate the provisioning of sufficient liquidity toward the year-end and the fiscal year-end. This measure will be effective from the November reserve maintenance period to the March 2009 reserve maintenance period, and the interest rate applied will be 0.1 percent.

Currently, the world's economy is undergoing a process of correcting various imbalances that accumulated during the past several years, and this will likely weigh on economic activity for some time to come. Against this background, it will likely take some time for the necessary conditions for Japan's economic recovery to be satisfied. The Bank will continue to do its utmost to facilitate a return of the Japan's recovery to its sustainable growth path with price stability through maintaining accommodative financial conditions.

(Reporting by Tokyo Policy Desk) . nt

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