Yen slides as BOJ stuns markets with negative rate policy

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SINGAPORE The yen dived on Friday after the Bank of Japan stunned financial markets by adopting a negative interest rate policy.

The Japanese central bank's action comes as investors around the world have been swept up by turmoil in markets amid fears of slackening global growth, a collapse in oil prices and wobbles in China's economy. That has pushed out BOJ's 2 percent inflation goal even further.

The BOJ said it was adopting a negative interest rate of -0.1 percent, adding that it would charge interest for excess reserves financial institutions park with the central bank.

The BOJ said it will cut interest rates further into negative territory if judged necessary.

The dollar jumped by more than 2 percent against the yen at one point to 121.495 yen, the greenback's highest level in more than a month.

The dollar later pared some of its gains and was last trading at 119.95 yen JPY=, still up 1 percent on the day.

"I don't think anyone was thinking that they would introduce negative interest rates today," said a trader for Japanese bank in Singapore.

The trader said that given the surprise BOJ action it was difficult to tell what kind of range dollar/yen might settle into in the near term.

"It's hard to even tell how much it will end up moving today," he added.

Going into of the Bank of Japan's decision, markets had been divided on whether it would ease monetary policy on Friday.

The choppiness in markets in recent weeks and falling inflation expectations due to cheaper oil had increased expectations for the BOJ to add to its monetary stimulus.

The yen fell broadly, with the euro rising 0.9 percent to 131.10 yen EURJPY=R.

Against the dollar, the euro slipped 0.1 percent to $1.0931 EUR=.

(Editing by Shri Navaratnam)