The Bank of Japan has slashed its benchmark interest rate to just 0.1%, joining a wave of global cuts as it warned of a sharp deterioration in the world's second largest economy.

Japan's central bank also tried to shore up ailing credit markets by announcing it would start directly buying commercial paper, the short-term debt that companies issue to run their daily operations.

In a 7-1 vote, the Bank of Japan policy board said that it was cutting the benchmark rate of borrowing from 0.3% to 0.1%.

The Age