Tokyo:The Bank of Japan (BOJ) said on Friday, after a two-day policy board meeting, it would introduce negative interest rates from next month.

The decision came to encourage more lending and business spending amid projections that the central bank will not acheive its two percent inflation goal as oil prices slide and a global economic downturn threatens to further impact spending, Xinhua reported.

The BOJ surprised markets here with economists widely believing further easing measures announced on Friday would be negligible, if at all, by saying it plans to introduce a negative interest rate from February 16 as falling oil prices have hampered the bank’s reflationary efforts.

The shock move is aimed at pro-actively defending against the global economic malaise denting business sentiment here.

Bank of Japan Governor Haruhiko Kuroda has maintained he plans to eliminate the “deflationary mindset” in Japan, particularly regarding business spending and private consumption, which account for around 60 percent of Japan’s gross domestic product.

The bank on Friday said it plans to achieve its inflation target “at the earliest possible time,” amid turbulent oil prices, the protected slump of which has impacted prices here and voted to apply a negative interest rate of minus 0.1 percent to current accounts held by financial institutions, in a narrow 5-4 vote by its policy board members.

The central bank’s policy board also decided the bank will further cut the interest rate below minus “as deemed necessary”.

“The BOJ will cut the interest rate further into negative territory if judged necessary,” the bank said following its unexpected decision.

The European Central Bank (ECB) has already announed negative interest rates, with President Mario Draghi last week intimating more stimulus in March to meet its inflation target. The BOJ had initially maintained it was reluctant to follow suit.

“This is a scary, dramatic move, and we may see that the more negative yields are, the better the economy gets. I thought they had ruled them out due to the risk of side effects,” Hideo Kumano, chief economist at Dai-ichi Life Research Institute, was quoted as saying.

By introducing negative interest rates the bank was hedging that commercial banks will be further incentivised to lend to businesses to promote widespread investment and growth.

The bank did, however, once again, announce a delay in the timing of its two percent inflation goal to the first half of fiscal year 2017, with the BOJ also cutting its inflation target for fiscal year 2016, stating it now expects the CPI to increase 0.8 percent from 1.4 percent projected three months ago.

The bank said it still has an optimistic view of the pace of inflation looking ahead, stating that it expects consumer inflation to accelerate to 1.8 percent in the fiscal year ending in March 2018, following the new measures implemented on Friday taking effect.

In terms of the bank’s monetary base, the policy board decided on Friday to continue to increase the base at an annual pace of around 80 trillion yen ($674.48 billion), through aggressive purchases of government bonds and risky assets conducted under its quantitative and qualitative easing (QQE) programme.

The bank’s decision follows a raft of economic data released by the government on Friday morning that missed market expectations, sparking concerns for the outlook of the world’s third-largest economy.

A slump in factory output and a decline in household spending and consumer prices in December edging up only 0.1 percent, while CPI for 2015 remaining largely flat, painted a glum outlook for the domestic economy.

The rate cut, however, immediately sent the benchmark Nikkei stock index shooting up three percent, and saw the yen retreat around two percent versus its US counterpart.

But the market’s gains here were soon erased as investors became concerned the bank’s move could trigger a currency war.

Despite the bank’s intentions behind pumping new money into markets, some analysts voiced concern on Friday that an ongoing stock market rout in Tokyo caused by investors switching out of riskier assets like stocks and into safe havens like the yen, should a currency war occur, would push its price back up and discourage firms from increasing capital expenditure despite the banks ultra-accommodative policy.