HONG KONG - Most Asian markets slipped Tuesday following a loss on Wall Street but Japanese shares soared and the yen sank after the central bank announced a surprise zero percent interest rate policy.
The Bank of Japan cut interest rates from 0.1% to between zero and 0.1%, the first rate move since December 2008, as it tries to give a much-needed boost to the ailing economy.
The decision, which came with other monetary easing measures, immediately sent the Nikkei higher: it ended up 1.47%, or 137.70 points, at 9,518.76.
The market was helped by the yen tumbling to 83.99 against the dollar, from 83.38 in New York, which gave exporters a boost. The euro rose to 114.90 yen from 113.86 in New York.
A weaker yen lifts exporters as it makes their goods more competitive abroad.
"It's a measure that exceeds market expectations," Yoshinori Nagano, senior strategist at Daiwa Asset Management, told Dow Jones Newswires.
Hideaki Inoue, chief forex manager at Mitsubishi UFJ Trust and Banking Corp, said: "The central bank decided on easing measures on a scale and rate much bigger than the market had expected.
However, he said the greenback's gains were limited by expectations of easing measures from the US Federal Reserve next month.
The BoJ in September expanded a multi-billion-dollar loan scheme to ease monetary conditions and help offset the impact of a strong yen, but the move was criticized as not offering enough.
Tuesday's announcement showed that the central bank had yielded to government calls to do more to help the economy, which has been stuck in a painful spiral of deflation and low growth, market-watchers said.
"It was a quite positive surprise," said Masumi Yamamoto, equity market analyst at Daiwa Securities Capital Market.
"This signalled the Bank of Japan bowed to pressure from the government and took all the possible measures, which may actually create a new concern that the BoJ has no card to play in its hands," Yamamoto said.
Japanese Finance Minister Yoshihiko Noda said he would make a statement on the decision later Tuesday.
The greenback clawed back slightly against the euro as concerns resurfaced over the state of European economies.
The euro was at 1.3711 to the dollar, up from 1.3683 in New York Monday. The European currency last week reached 1.3791 dollars, its highest reading since March 17.
However, downbeat news out of the eurozone weighed on the single currency.
The Irish central bank cut its 2010 GDP growth forecast from 0.8% to 0.2%, while the draft Greek budget forecast that country's economy would contract a further 2.6% in 2011, after an expected 4% slump this year.
Sydney fell 0.4%, or 18.4 points, to 4,606.9 thanks to a late rally after the Australian central bank said it would keep interest rates on hold at 4.5% for the fifth straight month.
Hong Kong was 0.4% lower by the break and Seoul edged down 0.35 points, or 0.02%, to 1,878.94.
Chinese markets were closed for a public holiday.
Most Asian traders took their cue from the Dow, which ended Monday 0.72% lower as jitters set in before Friday's of key jobs data, which provide a clue as to the state of the world's biggest economy.
On oil markets, New York's main contract, light sweet crude for delivery in November, eased 12 cents to $81.35 a barrel.
Brent North Sea crude for November fell 14 cents to $83.14.
Gold opened at $1,314.00-$1,315.00 an ounce in Hong Kong, down from Monday's close of $1,317.50-$1,318.50.