Bank of Japan introduces negative interest rate policy

Japan's central bank shocked markets today with plans to effectively charge lenders to park their cash with it, ramping up a long-running battle to kickstart the world's number three economy.

The unprecedented decision to adopt a below-zero interest rate policy is the Bank of Japan's latest weapon as it looks to spur bank lending and drive up inflation. In response, the Nikkei stock index soared almost three percent as the yen plunged.

BoJ chief Haruhiko Kuroda cited recent financial market turmoil and a China slowdown for ushering in a minus 0.1 per cent rate on new reserves, and said the bank may go even further into negative territory. Rates currently are near zero.

Under the plan, commercial lenders would now have pay to park cash at the BoJ, giving them an incentive to boost lending, which policymakers hope would stoke economic growth.

A similar below-zero policy was adopted by the European Central Bank in 2014, the first time by a major central bank.