Bank of Japan increases stimulus to boost growth
The Bank of Japan (BOJ) has made a surprise move to boost growth as the country's economy continues to struggle.
The central bank has announced it is to expand its asset purchase programme by 10tn yen ($130bn; £83bn).
The move comes just a day after data showed that Japan's economy shrank by more-than-expected 2.3% in the last three months of 2011.
The BOJ also left rates unchanged at between zero and 0.1%.
The central bank said it will use the extra funds to purchase Japanese government bonds.
"The Bank will pursue powerful monetary easing by conducting its virtually zero interest rate policy and by implementing the Asset Purchase Program mainly through the purchase of financial assets," the bank said.
The announcement was greeted positively by the markets with the Japanese currency falling by as much as 0.4% to 77.96 yen against the US Dollar.
The yen has been near record highs recently which has severely hindered Japan's export-led economy.
While the expansion of the asset buying scheme has come as a pleasant surprise, analysts warned that it was unlikely to have a huge impact.
They said that for any such move to have a big bearing on growth, it will have to be at a much bigger and radical scale.
"The BOJ seems to have given up on reflating the economy through purchase of risky assets," said Takuji Okubo of Societe Generale.
Mr Okubo said that instead of investing all the funds in safe-haven investments such as government bonds, the central bank needed to invest money in more riskier assets such as equity and corporate bonds.
He explained that such moves were necessary to inspire confidence in other investors and the overall economy.
The Japanese economy has been hurt by various factors over the past few months.
The earthquake and tsunami last year dented growth as some of the biggest manufacturers had to suspend or curb production. The recovery from the disasters was derailed by the floods in Thailand late last year which caused further disruptions to the supply chain.
At the same time, demand for Japanese goods has fallen in some of its biggest markets such as the eurozone, not least due to the economic issues in the region.
The country's businesses have also been hurt by a strong yen, which makes Japanese goods less competitive.
The central bank said these issues continue to remain a challenge for growth.
"The outlook for Japan's economy continues to entail high uncertainty regarding the prospects and outcomes of the European debt problem, the supply and demand balance of electricity and the effects of the yen's appreciation," the central bank said in a statement.