[TOKYO] The Bank of Japan ramped up its vast monetary easing programme Friday - sending the yen plunging and stocks soaring - in a surprise move aimed at reviving growth just as the Federal Reserve winds down its own stimulus spree.
After a one-day meeting, policymakers said they would add up to 20 trillion yen (US$182 billion) to the central bank's current asset-buying scheme, bringing it to 80 trillion yen annually.
The decision sent the yen sinking to 110.90 against the dollar, levels not seen since January 2008, while Tokyo's Nikkei 225 stock index soared more than five percent.
The move is the first since the bank launched its huge bond-buying scheme in April last year as part of Tokyo's wider plan to conquer years of deflation and jumpstart the economy.
Friday's decision throws into focus the sharp contrast of fortunes for the US and Japanese economies after the Federal Reserve on Wednesday brought an end to six years of bond-buying and considers an interest rate hike.
And on Thursday the Commerce Department said the US economy expanded an annualised 3.5 per cent in July-September, beating expectations of 3.0 per cent.
Japan's economy, on the other hand, contracted 7.1 per cent on an annualised basis in the second quarter - its steepest quarterly drop since the 2011 quake-tsunami disaster - as it was hit by a sales tax hike in April.
That has stoked fears about another downturn in July-September, which would technically put the country in recession.
A BoJ statement said the decision on Friday passed by a narrow 5-4 majority vote.
The bank acknowledged that the sales tax hike had put in trouble its target of 2.0 per cent inflation by next year, and said that had prompted Friday's decision.
"Japan's economy has continued to recover moderately as a trend and is expected to continue growing at a pace above its potential," it said.
"However, on the price front, somewhat weak developments in demand following the consumption tax hike and a substantial decline in crude oil prices have been exerting downward pressure recently.
"If the current downward pressure on prices remains, albeit in the short term, there is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed." It added: "To pre-empt manifestation of such risk and to maintain the improving momentum of expectation formation, the Bank judged it appropriate to expand the quantitative and qualitative monetary easing (QQE)." The move came after official data earlier Friday showed September inflation slowed and household spending slumped in September as consumers tighten their belts.
The BoJ is expected to release its outlook for the economy later Friday, which could see it downgrade its view.
The bank has already lowered its growth forecast for the fiscal year to March to 1.0 per cent, well down from a 1.5 per cent prediction in late 2013.