The Japanese stock market and the country's economists seem to differ on exactly what a rate cut would do for the economy.

While talk about a possible rate cut by Japan, which already has an extraordinarily low interest rate, boost the benchmark Nikkei 225 index back above the 8,000 mark this Wednesday, economists say any move to loosen the monetary policy would be only a gesture, and would contribute little for jump-starting Japan's economy.

Stocks rallied yesterday at the Tokyo stock market, which say the Nikkei 225 climb to 8,206.04, breaching the 8,000-mark for the first time in three trading days.

The Nikkei Business Daily had reported that the Bank of Japan is inclined towards lowering its target rate for the unsecured overnight call money rate to 0.25 per cent from the existing 0.5 per cent in a bid to support a domestic economy that has been hammered by a surging yen and falling share prices.

If it comes about, the rate cut by the Bank of Japan would be the first such move since March 2001, when the bank implemented a process that drove the rate almost to zero.

Reports said that ahead of the weekend on Friday, the Bank of Japan will release a downgraded economic outlook for the country, and would cut its growth rate projection for fiscal 2008 to nearly 0 per cent from 1.2 per cent. Reports suggest that the bank's forecast for fiscal 2009 will also most likely be downgraded to anywhere from 0.5 per cent to one per cent from the previously estimated 1.5 per cent.

For the first time in 26 years, the falling value of Japanese stock saw the benchmark index slip below the 7,000 mark on Monday at the start of the trading week.

Reports say that a possible rate cut could be more of a signal of support for the global drive to avert an impending recession rather than a move to cushion the Japanese economy.

The market are reported to be betting on an interest rate cut by the Fed to the tune of 50 basis points, while the central banks of China, India, Australia and Canada have already reduced interest rates earlier in the month. The European Central Bank and the Bank of England are expected to follow suit sometime next week. That would leave Japan out in the cold against global support to get the economy out of the financial crisis, if it were to choose not to reduce its rate.

However, till now policymakers at the Bank of Japan have been reported as saying that a move to reduce rates would not suit the Japanese economy, which is facing ''an imported recession'' with foreign demand for its manufactured goods slumping. Therefore, say economists, the only purpose that a rate cut by the Bank of Japan would serve is that of sending a message to the global community that Japan is cooperating with other nations to tackle the global financial crisis.

The effect of that crisis finally reached Japan's shores earlier in the month, with the stock market tanking and losing a third of its value in just around three weeks, and Japan's largest banks sliding as a consequence. Most of the banks in Japan had thus far managed to largely avoid the impact of the credit market losses that their western rivals had suffered.

Three of Japan's largest banks are reported to be on the look out to renew capital lost on stock market investments, while exporters brace for the impact of a yen rally to 13-year highs against the dollar.  There are widespread expectations that this rally would pummel demand for goods in western markets, which are already lurching toward a recession.

Japan's industrial output dropped 1.2 per cent in the July to September quarter, marking the third straight quarterly decline, which is the longest since 2001, when Japan was in recession.

Japan's unemployment rate remained at 4.2 per cent in September 2008, and its household spending dropped 4 per cent from a year ago, Bloomberg News said citing surveys of economists.