The Bank of Japan on Friday announced further monetary easing measures in its latest bid to halt the damaging spiral of deflation that has plagued the economy for years.

The central bank said it would increase its asset purchase programme by 5 trillion yen (US$62 billion) to about 70 trillion yen. It also said its policy board had voted unanimously to keep its key interest rate unchanged at between zero and 0.1 per cent.

The BoJ also said it will expand its purchases of government bonds to those with longer maturities.

"The bank decided to increase the outstanding amount of the (asset purchase) programme to about 70 trillion yen by around end-June 2013," a statement said.

The Bank was already committed to boosting its asset purchase war chest to 65 trillion yen by the end of 2012.

The latest easing move is yet another salvo in Japan's ongoing battle with the deflation that has had a stranglehold on its economy for years.

Figures released Friday showed prices rose just 0.2 per cent on year in March, almost solely due to rocketing energy prices around the world.

While seemingly good news for individual consumers, falling prices are bad for the economy as a whole because they encourage shoppers to put off purchases in the hope they will pay even less for goods in the future.

This cuts into corporate profits and stops firms investing in capital and employees because they are unable to see future demand.

Last month, the Bank almost doubled a loan programme to 5 trillion yen amid reconstruction efforts seen as crucial to reviving the economy, which was hammered by last year's quake-tsunami disaster and flooding in Thailand.

The central bank has been forced to resort to the unconventional measure as its ability to free up money has been limited since interest rates were cut to zero to 0.1 per cent at the end of 2008 during the global financial crisis.

The BoJ said it "expects that, together with the cumulative effects of earlier policy measures, today's decision to further enhance monetary easing will better ensure the return of Japan's economy to a sustainable growth path with price stability".

The bank repeated its view that Japan's economy "is expected to return to a moderate recovery path" helped by recoveries overseas, especially in emerging economies, and reconstruction-related demand after the earthquake disaster in March last year.

But it said the economy is likely to fail to reach the central bank's short-term inflation target of one per cent.

It said "the year-on-year rate of change in the CPI (Consumer Price Index) is expected to gradually rise to... less than 1.0 per cent toward the latter half of" the fiscal year ending March 2014.

The BoJ has set a target level for inflation, saying that it had a price stability "goal" of 2.0 per cent in the medium- to long-term and 1.0 per cent for the time being.

"In order to overcome deflation, it is crucial to tackle the long-term structural challenge of declining trend growth rates amid rapid population ageing," it said, calling for private firms to "explore new sources of demand both at home and abroad."

It also called for the government "to create a more conducive environment"to support such private business activities.

channelnewsasia.com