By Mayumi Otsuma Oct. 31 (Bloomberg) -- The Bank of Japan cut its benchmark interest rate to 0.3 percent to stem damage on the economy from the global financial crisis. Governor Masaaki Shirakawa took the casting vote in a split 4-4 vote to cut the key overnight lending rate from 0.5 percent, the central bank said in Tokyo today. Fifteen of 17 economists surveyed by Bloomberg News predicted a cut to 0.25 percent. Shirakawa came under pressure to lower borrowing costs for the first time in seven years after Japan's currency surged to a 13-year high last week and the Nikkei 225 Stock Average slumped to the lowest level since 1982. Until now, Japan had kept rates on hold in the face of cuts by central banks worldwide, arguing that Japan's borrowing costs were already ``very low.'' ``Given the state of the economy and financial markets, this is the time to lower borrowing costs,'' said Naoki Iizuka, a senior economist at Mizuho Securities Co. in Tokyo. ``The yen has been weakening because investors already factored in a rate reduction, so it would be difficult for the BOJ to resist.'' Asian stocks rallied and the yen slumped yesterday after central banks in the U.S., China, Taiwan and Hong Kong cut borrowing costs. European Central Bank Governor Jean-Claude Trichet said on Oct. 27 his board may reduce rates next week. Speculation the Bank of Japan would cut rates was fueled by a Nikkei newspaper report on Oct. 29 that said policy makers were leaning toward a reduction. The chance the bank will halve its key rate rose to 60 percent today from 8 percent earlier this week, according to calculations by JPMorgan Chase & Co. Faltering Economy Evidence that the world's second-largest economy is faltering mounted in the past month as the global crisis deepened. Exports climbed 1.5 percent in September, less than half of what economists expected, and industrial production tumbled for a third quarter. Reports today showed inflation eased and household spending fell for a seventh month. Shirakawa and his board had given no indication they planned to cut borrowing costs, other than to say that the board was ``flexible.'' As recently as Oct. 7 the governor said prolonging a low-rate policy may overstimulate the economy and make growth unsustainable in the long run. Deputy Governor Kiyohiko Nishimura told lawmakers on Oct. 29 that providing liquidity is ``the most important contribution central banks can make at times when tension in financial markets is heightened.'' He didn't mention the possibility of cutting rates in his testimony. A rate reduction may provide some relief to Prime Minister Taro Aso, who yesterday unveiled a $51 billion economic stimulus package in a bid to minimize the effect of tumbling stock prices and the surging yen on the economy. Economic and Fiscal Policy Minister Kaoru Yosano said this week that a rate reduction would be ``symbolic'' if done in conjunction with other central banks and would show Japan is taking part in global efforts to counter the financial crisis. Policy makers will release their forecasts for economic growth and consumer prices in a semi-annual economic outlook report at 3 p.m. Shirakawa will brief the press at 3:30 p.m. To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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