The credit easing, while sending yen bond yields to record lows, capped the dollar's topside against the yen by spurring speculation that the US Federal Reserve may follow suit.

The Nikkei average closed down 89.51 points or 0.61 per cent at 14,666.03. September futures fell 110 points to 14,600. By comparison, bonds rose, pushing yields to historic lows.

``It makes an extreme situation more extreme,'' said a dealer Michael Wilkins at Credit Lyonnais. ``At the end of the day, it's hard to see a net positive effect on the real economy.''

The BoJ -- in its first monetary policy change in more than three years -- said late on Wednesday it would guide the overnight call rate on average to around 0.25 per cent.

The rate had traded at just below the 0.5 per cent discount rate for much of the pastthree years.

"I'm sceptical about how much the BoJ's move will help boost the ailing domestic economy, although it will help put a brake on deflationary pressures at home,'' said deputy general manager Kenji Karikomi of Daiwa Securities.

Banks and brokerages, among the sectors most sensitive to changes in interest rates, were sold off in late trading. The banking sub-index was off 0.7 per cent, while securities slumped 4.72 per cent. But Fuji Bank, hard hit on Wednesday, was up four yen at 333.

In New York overnight, the Dow fell as a string of profit warnings and concerns about the stability of president Bill Clinton's administration roiled investor sentiment.

Against an increasingly grim domestic and international backdrop, traders said investors will be quick to take profits if the Nikkei popped above 15,000.

``The BOJ's decision will be neutral for share prices,'' said head of the second equity trading division Yoshikazu Kanbayashi at Kankaku Securities. ``It does nothing to change the outlookfor gloomy corporate earnings.''

The dollar meanwhile hovered at around 135.70 yen in late Tokyo trading, down from its New York close of about 136.70.

``Speculation that the Fed could follow the BoJ's move is likely to prevent the dollar from reaching 140 yen in the near term,'' said a dealer at a Japanese city bank.

Also capping the dollar's topside was an intervention warning from a Japanese monetary authority.

Vice finance minister for international affairs Eisuke Sakakibara told Reuters on Thursday that Japan would intervene in the foreign exchange market whenever necessary. He also said the ministry welcomed the BoJ's decision to ease credit.

The yield of the benchmark 182nd 10-year JGB fell to a global record low of 0.840 per cent in late afternoon, compared with the previous low of 0.995 per cent on September 1.

``Investors' buying of JGBs was stronger than many had expected,'' said a senior dealer at a city bank's securities unit. ``Many gave up waiting for a bargain-hunting chance andstarted to buy near highs.''