Japan cuts rates to virtually zero; Nikkei spikes

The Bank of Japan has cut interest rates to virtually zero in an effort to revive the ailing economy.

In a unanimous vote, the Bank of Japan's nine-member policy board surprisingly voted to set its overnight call rate target to a range of zero to 0.1%. Interest rates in Japan have been unchanged December 2008.

The moved is aimed at injecting life into the faltering Japanese economy, with country the struggling with deteriorating exports, production and corporate sentiment. The strengthening yen has also negatively impacted the economy.

"Although Japan's economy still shows signs of a moderate recovery, the pace of recovery is slowing down partly due to the slowdown in overseas economies and the effects of the yen's appreciation on business sentiment," the central bank says.

"Comparing with the outlook presented in the Bank's July interim assessment, the economic growth rate is likely to be somewhat lower than expected.

"In addition, amid heightened uncertainty about the future, especially for the US economy, attention should still be paid to downside risks to Japan's economy."

The central bank action led to strong gains for the Nikkei 225, with the index rebounding from a poor start to close 1.47% higher to 9,518.76.