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Bank of Japan opts for more monetary easing

Tokyo - The world's third-largest economy is to get a boost in the form of additional monetary easing, announced the Bank of Japan Friday in a surprise move.

The bank said it will boost the amount of money it pumps into the economy each year by 10 trillion to 20 trillion yen ($91bn to $182bn). That would bring the annual pace of the economic easing to 80 trillion yen a year.

Such easing, considered controversial by some economists, has been in increasing use across the Western world in recent years as central banks try to right economies hit hard by the financial crisis. Central banks essentially increase the amount of money available in an economy by creating more and then using it to buy assets, in an effort to push up demand.

The bank's nine-member policy board was split on the move, which was supported by five members, including Governor Haruhiko Kuroda and his two deputies.

"The size of expansion was not so large. But the timing was unexpected and a significantly big surprise," economists at SMBC Nikko Securities Inc said in a statement.

The central bank also said on Friday that it would buy more government bonds from financial institutions, two days after the US Federal Reserve decided to end its bond-buying programme.

"Japan's economy has continued to recover moderately," the bank said in a statement released after a monetary policy meeting.

However, "somewhat weak developments in demand following the consumption tax hike and a substantial decline in crude oil prices have been exerting downward pressure recently," the bank added.

"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," Kuroda told a news conference.

The economy contracted at an annualized rate of 7.1% in the three months to June amid sluggish consumption after Japan's sales tax was increased to 8% on April 1 from 5% - the first hike in 17 years.

Prime Minister Shinzo Abe is weighing another sales-tax hike to 10% in October 2015.

The bank's decision on Friday was the first policy change since the bank introduced aggressive monetary easing in April 2013 to achieve a 2% inflation target within two years.

Abe and the bank's Kuroda have vowed to pull the economy out of a deflationary spiral that has plagued the country for nearly two decades.

Many analysts, however, doubted the bank could hit the target within the initial time frame.

The bank's move prompted the benchmark Nikkei 225 Stock Average to jump 4.8% to end at 16 413.76, The yen fell further against major currencies.

The bank also said it had revised downward its economic growth outlook for the current financial year, to 0.5% from 1.0% estimated in July.

The bank also cut its estimates for the nation's inflation rate to 1.2% for the year through March 2015 and to 1.7% for the next financial year, from 1.3% and 1.9%, respectively.

The bank decided the additional monetary easing on the same day the government reported Japan's inflation rate slowed for the second straight month in September.

Japan's consumer prices climbed at 3.0% in September from a year earlier, down from a 3.1% rise in August.

Discounting the effect of the nation's sales tax hike in April, the rate would be 1.0%, the central bank said. The rate slowed for the second consecutive month in September from 1.3% in July and 1.1% in August, as measured without the tax hike.

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