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Bank of Japan Cuts Interest Rates as Economic Outlook Worsens

Japan's central bank has slashed its key interest rate below one percent, while the government predicts the nation's economy will experience zero growth through 2010.

The Bank of Japan cut its key interest rate to 0.10 percent Friday. The rate cut was expected after the U.S. Federal Reserve cut the U.S. interest rate between zero and one-quarter percent Tuesday.

The Japanese central bank says it will begin buying commercial paper, the short-term debt that companies issue to fund their day-to-day operations, and increase its purchase of government bonds. The moves are aimed at pumping more money into the financial system to make it easier for businesses to acquire loans.

Meanwhile, Japan's Cabinet Office says the nation's economy will contract by 0.8 percent through March 2009, and will remain flat in the following year.

The office projects unemployment will rise to 4.7 percent by March 2010.

Japan's economy has been battered by the global recession, which has led to a sharp drop in demand in exports. The economic downturn has also been aggravated by the soaring value of the yen, which makes Japanese products more expensive for foreign markets.

Japanese Prime Minister Taro Aso announced a $255 billion stimulus package last week. The money would be directed towards tax cuts for homeowners and pumping capital into financial markets.

Some information for this report was provided by AFP, AP and Reuters.