On Friday, Japan followed the European Central Bank in cutting a benchmark interest rate below zero, imposing a penalty charge on banks who park money with the institution.

Economists, however, said this tactic had seen limited success in the euro zone, Sweden or Denmark, where similar charges have been imposed to encourage banks to lend in the hope of buoying the economy and averting deflation.

"I think these efforts in Europe and Japan are failures," said Richard Koo of the Nomura Research Institute in Japan.

"The private sector is not borrowing money at any interest rate. This entire exercise is not going to work," said Koo, who argued that only a clean-up of bad loans would lift lending and the economy.

The euro zone's 19 members, from Germany to Greece, have considerable experience with a negative deposit rate.

ECB President Mario Draghi cut this rate below zero for the first time in the middle of 2014, effectively charging banks that park money overnight with the ECB. It was reduced again in December and a further cut is expected in March.

'SMOKE SCREEN'

Yet rather than serving as testimony to the ECB's ability to act, many economists believe it shows the opposite, namely that it has few other alternatives after the launch of an ambitious money printing program to budge inflation.

Daniel Gros, who heads the Centre for European Policy Studies think tank in Brussels, dismissed such moves as a "smoke screen".

"We know that small changes in the interest rate have an extremely limited impact on investment," he said.

While negative rates have lifted lending in the euro zone, in particular for home buying, inflation remains at just 0.4 percent, far off the ECB's 2 percent goal.

Other countries report a similar experience.

In early 2015, Sweden introduced negative rates, imposing a penalty charge on banks. But the northern European country has seen only modest economic improvements.

While price inflation, stripping out the cost of mortgages, climbed through the year to around 1 percent, it recently fell back slightly. Steady price inflation is seen as a gauge of economic health.

Denmark, whose currency is pegged to the euro, introduced similar cuts to rates at the start of last year but the impact was marginal and it recently reversed course.

"I don't think this is going to cure the deeper problem in Japan," said Thomas Thygesen an economist in Copenhagen with Swedish bank SEB.

Even worse, negative rates can prompt excessive lending to home buyers rather than companies, where credit is most needed to spur investment and the economy.

House prices in Stockholm, like in many cities in Germany, are rising fast, prompting warnings of a property bubble.

Francesco Papadia, a former senior ECB manager, cautioned that the impact of negative rates is limited partly because cutting them too low would prompt savers to keep money 'under the mattress'.

"There is a limit to how negative interest rates can go because they otherwise would encourage people to hoard banknotes," he said.

"So while negative rates can help, the cuts as well as the impact can only be small."

(Additional reporting by Daniel Dickson in Stockholm and Sabina Zawadzki in Copenhagen; writing by John O'Donnell)

By John O'Donnell and Balazs Koranyi