* 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 pares gains
* BOJ keeps base money target unchanged at 80 trln yen (Updates prices)
By Masayuki Kitano
SINGAPORE, Jan 29 (Reuters) - The yen tumbled on Friday after the Bank of Japan stunned markets by announcing it would adopt negative interest rates on a portion of financial institutions' deposits parked at the central bank.
The Japanese central bank's action comes as investors around the world have been swept up by turmoil in markets amid fears of slackening global growth, a collapse in oil prices and wobbles in China's economy. That has increased headwinds against the BOJ's 2 percent inflation goal.
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, a move that will effectively charge banks interest for parking excess deposits at the central bank.
Also, the BOJ said it will cut interest rates further into negative territory if judged necessary. 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 120.73 yen JPY= , up 1.6 percent on the day.
"The dollar initially climbed above 121 yen due to the negative interest rate surprise," said Shinji Kureda, head of FX trading group for Sumitomo Mitsui Banking Corporation in Tokyo.
However, a sticking point is that the BOJ's new policy is not very compatible with quantitative easing, as can be seen from the fact the BOJ kept its monetary base target unchanged, Kureda said.
"I don't think this (move) is necessarily being viewed in a positive manner," he said, referring to the reaction among market participants.
The BOJ said it would conduct money market operations so that the monetary base will increase at an annual pace of 80 trillion yen ($675 billion).
BOJ Governor Haruhiko Kuroda said the central bank adjusted policy due to worries about a delay in eradicating a deflationary mindset, adding that the central bank won't hesitate to ease further to reach its inflation goal. yen fell broadly, with the euro rising 1.2 percent to 131.54 yen EURJPY=R , while the Australian dollar surged 2.1 percent to 85.92 yen.
"Yes, the BOJ has surprised with the introduction of negative interest rates. However, we note that it is made on a marginal majority vote of 5 vs 4," said Heng Koon How, senior FX strategist for Credit Suisse (VX:CSGN) private banking and wealth management in Singapore.
"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," he added.
Later on Friday, investors will turn their focus to U.S. fourth-quarter gross domestic product data, which is expected to show a slowdown in growth.
(Editing by Richard Borsuk)