* Nikkei climbs but volatile after BOJ policy easing surprise
* Bank shares hammered on negative rate policy
* Exporters gain ground due to a weaker yen
By Ayai Tomisawa
TOKYO, Jan 29 (Reuters) - Japan's Nikkei share average rose more than 3 percent in volatile trade on Friday after the Bank Of Japan unexpectedly eased monetary policy further by introducing a negative interest rate policy.
The Nikkei rose to 17,559.76 points by midafternoon after diping into negative territory at one point as investors digested side effects from the new policy on the banking sector.
The BOJ said it was adopting an interest rate of -0.1 percent, adding that it would charge interest for excess reserves financial institutions park with the central bank. The BOJ said it will cut interest rates further into negative territory if judged necessary.
Bank shares were hammered, with Mitsubishi UFJ Financial Group falling 4.3 percent, Sumitomo Mitsui Financial Group dropping 3.0 percent, and Japan Post Bank diving 5.9 percent.
BOJ Governor Haruhiko Kuroda had said as recently as last week that the bank was not thinking of adopting a negative interest rate policy for now.
"If the BOJ did not do anything amid market turmoil while it is unlikely to achieve a 2 percent inflation target under Kuroda's term, it would have sent a message to the market that the central bank is not willing to counter deflation," said Kyoya Okazawa, head of global market & commodity derivatives at BNP Paribas.
"The BOJ must have taken a big chance to counter a slowdown in the economy and on sacrificing a negative impact to the banking industry."
Along with the global financial market battered by falling oil prices and fears of slower economic growth in China, the Nikkei has fallen 8 percent in 2016, slipping to a 14-1/2 month low of 16,017.26 last week.
After the announcement, 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.
"Investors have had a hard time assessing what the BOJ's announcement means to the Japanese economy. After all, the market cheered the BOJ's decision as a weak yen is positive for Japan Inc," said Takuya Takahashi, a strategist at Daiwa Securities.
Exporters gained ground, with Toyota Motor Corp rising 4.5 percent, Honda Motor Co soaring 2.8 percent and Nissan Motor Co surging 7.3 percent.
The Topix soared 2.5 percent to 1,427.09, and the JPX-Nikkei Index 400 surged 2.6 percent to 12,874.10. (Reporting by Ayai Tomisawa; Editing by Kim Coghill)