* BOJ to apply -0.1 pct rate for some of banks' deposits at BOJ
* Move effectively charges banks for parking excess deposits
* Dollar/yen initially jumps 2 pct, later trims gains
* BOJ keeps base money target unchanged at 80 trln yen (Recasts, adds quote, updates with European trade)
By Anirban Nag
LONDON, Jan 29 The yen was on track for its biggest daily fall against the dollar in over a year on Friday after the Bank of Japan stunned markets by joining a handful of major central banks in adopting negative interest rates.
The turmoil in markets since the start of the year on fears of slowing global growth, collapsing oil prices and wobbles in China's economy has driven investors to seek safety in the yen, making the BOJ's 2 percent inflation goal ever harder to reach.
The BOJ said it would apply a negative interest rate of minus 0.1 percent on selected current account deposits that financial institutions hold with it, effectively charging banks interest for parking excess deposits at the central bank.
The bank said it would cut interest rates further into negative territory if it deemed it necessary.
The dollar jumped by more than 2 percent against the yen at one point to 121.495 yen, the greenback's highest level in more than a month. It subsequently pulled back a bit and was last trading at 120.75 yen, up 1.65 percent on the day and on track for its biggest daily gain since December 2014.
"We do not think negative rates are a game changer," said Esther Reichelt, currency strategist at Commerzbank. "Pressure on the BoJ will mount to do even more in coming months to attain their inflation target."
She added risk sentiment remains a key driver for the yen and if the currency appreciates, pressure on the BOJ to take rates deeper into negative territory will rise in coming months.
The Japanese central bank joins the Swiss National Bank, Sweden's Riksbank, Denmark's central bank and the European Central Bank in adopt negative rates. The SNB, Riksbank and ECB have been grappling with the threat of deflation and have tried to weaken their currencies to boost prices.
Governor Haruhiko Kuroda said the BOJ was concerned about the delay in eradicating a deflationary mindset in Japan.
The BOJ maintained its pledge to expand base money at an annual pace of 80 trillion yen ($675 billion) via purchases of Japanese government bonds and risky assets conducted under its quantitative easing programme.
"Irrespective of this surprise easing from the BOJ, the yen remains rather undervalued, especially after this knee-jerk fall past 120 (against the U.S. dollar). It remains to be seen if this yen move is sustainable," said Heng Koon How, senior FX strategist for Credit Suisse private banking and wealth management in Singapore. (Additional reporting by Masayuki Kitano; Editing by Hugh Lawson)
