Japan slashed interest rates to almost zero Friday as it tries to stave off a long recession while a major banking group warned the global economy would sink into a "severe" contraction next year.

Japan's central bank sliced lending rates to 0.1 percent from 0.3 percent on the day the government forecast the economy would not grow at all until 2010.

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

The cut, which was agreed in a 7-1 vote by the bank's policy board, had an immediate effect on the currency markets, bouncing the US dollar back from 13-year lows against the yen.

It follows a similar move Tuesday by the US Federal Reserve, which slashed its lending rate to 0-0.25 percent from 1.0 percent as it tries to bolster the world economy.