Japan's central bank has announced a 20 basis point cut in its key lending rate, from 0.50 per cent to 0.30 per cent, but that has not helped revive investor sentiment hit by the global financial market crisis.

The Bank of Japan also trimmed the Lombard rate - the interest it charges on loans made directly to member banks - to 0.5 per cent from 0.75 per cent.

The central bank also decided to pay a 0.1 per cent interest incentive on commercial banks' reserves it held.

The benchmark Nikkei index, in fact, fell sharply after the BoJ cut interest rates for the first time in seven years, but at a rate lower than expected.

The 225-stock average finished down 5 per cent at 8576.98. It had risen 26 per cent over the last three days.

The Japanese currency rose to 96.87 per dollar during late evening trade in Tokyo, up from 98.43 before the rate cut decision. The yen had climbed as high as 90.93 a week ago, the strongest in 13 years.

The Bank of Japan board was reported to be divided over the rate cut. While three of the board members wanted to cut the rate to 0.25 per cent, one voted to leave it unchanged. 

Governor Masaaki Shirakawa cast the deciding vote to lower the key overnight lending rate from 0.5 per cent to 0.30 per cent after four of the eight board members dissented, the central bank said in Tokyo.

While Japan has never been under pressure to cut rates as the Bank of Japan's key lending rates were always too low, the latest BoJ decision came after the Nikkei 225 Stock Average slumped amidst a global stock market meltdown.

The Bank of Japan board was reported to be divided over the rate cut. While three of the board members wanted to cut the rate to 0.25 per cent, one voted to leave it unchanged. 

Governor Masaaki Shirakawa cast the deciding vote to lower the key overnight lending rate from 0.5 per cent after four of the eight board members dissented, the central bank said in Tokyo.

BoJ expects core consumer price inflation to be around 1.6 per cent this fiscal and to drop further to zero per cent in the next fiscal. Prices will gain 0.3 per cent in the year starting April 2010, it said.

Exports, however, have been one major worry. Japan's exports rose by a lower-than-expected 1.5 per cent in September. Manufacturing output also fell for the third quarter.