DPA | 30 Oct, 2009
Japan's central bank decided Friday to end its purchases of corporate debt at the end of this year as the world's central banks begin withdrawing emergency measures taken in the thick of the global financial crisis.

With credit now easier to come by, the Bank of Japan also decided at the end of a one-day meeting to prolong unlimited collateral-backed loans to banks a final time until March 31.

In addition, the Bank of Japan forecast that the world's second-largest economy would begin expanding at the beginning of the next fiscal year, which begins April 1, and kept its benchmark interest rate unchanged at 0.1 percent.

It promised to keep borrowing rates low while forecasting another year of falling prices.

The announcements came as corporate earnings reports came in better than expected, the unemployment rate fell for the second-straight month, stocks rose and consumer spending increased as Japan struggles to recover from its worst postwar recession.

The Bank of Japan predicted in its twice-yearly report on economic and price developments that Japan would see at least three years of deflation while at the same time experiencing moderate growth.

It forecast growth in Japan's gross domestic product of 1.2 percent in the coming financial year after an estimated contraction of 3.2 percent this year. In the year beginning April 1, 2011, it expected the expansion to pick up steam with a world economic recovery and 2.1 percent domestic growth.

An enduring recovery in private domestic consumption, however, was not expected until the second half of the next fiscal year, it said.

Deflation would weaken over the next three years, the Bank of Japan said, predicting that it was unlikely that the falling prices would exert a dampening effect of economic activity.

Consumer prices, excluding food, were forecast to sink 1.5 percent this fiscal year, 0.8 percent next fiscal year and 0.4 percent the year after that.