The Bank of Japan has cut interest rates to -0.1% as policymakers try to keep their economic plans intact in the face of global headwinds.
They said the catalyst for the move was falling oil prices and China's slowdown, rather than domestic economic weakness, according to the Financial Times.
Japan's missed targets: A severe misdiagnosis?
Policymakers want to keep the Bank's ambitious plans on track to push inflation up to 2% between March and October 2017 (six months later than previous targets), from just 0.2% in December. Its asset purchase scheme has been kept unchanged at ¥80trn a year.
The BoJ said: "...there is an increasing risk that an improvement in the business confidence of Japanese firms and conversion of the deflationary mindset might be delayed and that the underlying trend in inflation might be negatively affected.
"The bank will lower the short end of the yield curve by slashing its deposit rate on current accounts into negative territory and will exert further downward pressure on interest rates across the entire yield curve."
However, the Financial Times reports the BoJ will keep paying positive interest on the bulk of bank reserves, so the move will not have a huge direct impact on the Japanese economy.
It will also use a three-tier system, which makes the negative rate much weaker than similar moves by the ECB and other European central banks.
The yen fell more than ¥1.5 to ¥120.3 against the dollar following the move, while the Topix was up more than 1%.
Japan unlikely to return to steady growth - even under Abenomics
This latest move will raise additional concerns about the overall effectiveness of Abenomics and the impact of China's slowdown on Japan. The country fell into recessionary territory last year after reporting growth contracted in Q2 and Q3.
Meanwhile, its equity markets have also not been immune to global turbulence, with the Nikkei 225 index dropping into bear market waters earlier this month.
Trevor Greetham, head of multi-asset at Royal London Asset Management, commented: "Market stress is again triggering policy ease by the world's largest central banks, in an echo of the events of autumn last year. The Bank of Japan has surprised the market today by moving to a negative interest rate policy.
"Mario Draghi signalled that there would be further ease from the European Central Bank at the next meeting. Meanwhile, the January Federal Open Market Committee statement set the bar very high for a March rate hike in the US.
"Concerns over growth in China helped to trigger a plunge in chronically over-supplied commodity markets. A deflationary shock like this will always be met with monetary easing. With investor sentiment deeply oversold we have been buying equities and remain overweight Europe and Japan, the regions where policy is loosest."
