Kim Hjelmgaard

USA TODAY

The Bank of Japan on Friday introduced a negative interest rate policy, a move aimed at boosting a stumbling economic recovery and warding off deflation. Markets jumped on the intervention.

Tokyo's central bank hopes that by imposing a 0.1% fee on selected current account deposits — effectively a negative interest rate — commercial banks will be encouraged to make more loans and so stimulate economic growth. Japan's economy is forecast to grow just 1.1% in 2015 and 1.7% in 2016.

Japan's benchmark Nikkei 225 stock index immediately leaped higher on the news. It ended the trading session up 2.8% at 17,518.30. China's Shanghai composite advanced 3.1% to 2,737.60. The Japanese yen initially slid after the announcement before recovering to rise 1.7% against the dollar to 120.79.

Futures higher as BOJ introduces negative interest rate

The Bank of Japan said in a statement that it would cut rates further into negative territory if it needed to push borrowing costs even lower. It said the policy would continue as long as needed to achieve an inflation target of 2%.

Japan has experienced widespread deflation, or falling prices, for decades. By lowering borrowing costs, the central bank is hoping that consumers will spend more and stimulate inflation, or rising prices. Members of the Bank of Japan's monetary policy board voted by 5-4 to adopt the lower rates.

"A week ago Bank of Japan Governor (Haruhiko) Kuroda suggested (at the World Economic Forum) in Davos that further easing was on the cards, (but) a move to negative rates was not expected," said Simon Smith, chief economist at FxPro Insights, an online trading broker, in emailed comments.

Regional European indexes saw broad-based gains Friday. Britain's FTSE 100 index added 1.6%. U.S. stock indexes rose sharply with the Dow Jones industrial average gaining nearly 400 points and The Standard & Poor's 500 index rose 2.5%, while the Nasdaq composite gained 2.4%.

The U.S. government's first estimate for fourth-quarter economic growth showed the economy expanded 0.7%. Forecasters expected a figure of 0.8%.

OTHER CENTRAL BANKS WITH NEGATIVE RATES

ECB: -0.3%

Sweden: -0.35%

Switzerland: -0.75%

Denmark: -0.65%

Sources: ECB, Sveriges Riksbank, Swiss National Bank, NationalBank, respectively.

GDP growth likely to slow but follow the jobs

Kim Hjelmgaard on Twitter: @khjelmgaard.