RTRS: Shock Fed rate cut puts focus on Bank of Japan
* Fed cuts rates to zero to 0.25 pct range; stocks rally
* Analysts say BOJ could cut rates later this week
* Honda shares fall on possible profit warning
* OPEC expected to cut oil output by record amount (For full crisis coverage, double click on [nCRISIS])
By Mark Felsenthal and Leika Kihara
WASHINGTON/TOKYO, Dec 17 (Reuters) - The U.S. Federal Reserve's radical step of slashing its key interest rate to between zero and 0.25 percent raised expectations the Bank of Japan and other central banks will follow with their own moves to support the stumbling global economy.
Asian markets rallied on news of the larger-than-expected cut from 1 percent, which virtually exhausts the traditional Fed tools to battle the year-long recession. Asian stocks took cues from Wall Street, where shares closed up 5 percent on Tuesday. [ID:nHKG168040]
The Fed said it would employ "all available tools", echoeing a policy pursued by Japan earlier this decade when it flooded banks with money to promote lending. [ID:nN16593807]
Its move could push the Bank of Japan (BOJ) to cut interest rates to almost zero from 0.3 percent when it meets on Thursday and Friday and possibly follow the Fed into buying commercial paper outright or purchasing asset-backed securities, reviving a scheme it put in place five years ago during the bank crisis. [ID:nT280396]
Other central banks could follow, analysts said. [ID:nT172384]
"I think it's more and more likely that key rates in Asia are going to converge at a level much lower than previously forecast," said Glenn Maguire, Asia chief economist with Societe Generale in Hong Kong.
"We will see an ultra-low interest rate policy across Asia and central banks on a case by case basis will target liquidity in the banking system where needed."
Hong Kong, which pegs its currency to the U.S. dollar, cut its discount window base rate by 100 basis points on Wednesday. [ID:nSEO233210]
STRONG YEN PRESSURES EXPORTERS
U.S. Treasury debt rallied sharply after what Japan's top financial diplomate Naoyuki Shinohara called the Fed's "bold" move, pushing the benchmark note's yield down to five-decade lows.
Japanese government bonds surged on Wednesday, with the two-year yield hitting its lowest level in nearly three years on expectations for a BOJ rate cut. [ID:nT210138
