BoJ expands bond-buying programme in surprise move

Japan's central bank has unexpectedly expanded its monetary easing plan in a bid to revive growth amid downwards pressure on prices and falling consumer spending.

The move saw Japanese stocks soar on Friday and the yen slump close to seven-year lows against the dollar.

The Bank of Japan (BoJ) said it would increase its bond buying programme to 80trn yen a year, up from the Y60trn-70trn level which has been in place since April 2013.

The decision by policymakers, which only passed by five votes to four, came after Japanese gross domestic product (GDP) sank by an annualised 7.1% in the second quarter of 2014 following a sales-tax hike from 5% to 8% which curbed consumer spending in April. This was the worst quarterly contraction since the earthquake and tsunami in 2011

"Japan's economy has continued to recover moderately as a trend and is expected to continue growing at a pace above its potential," the BoJ said in a statement on Friday.

"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," it said.

The central bank said that if the current downward pressure on prices remains, "there is a risk that conversion of deflationary mindset, which has so far been progressing steadily, might be delayed".

Data on Friday showed that the annual rate of core consumer-price inflation in Japan eased to 3% in September, surprising analysts who had expected it to remain unchanged at 3.1%.

"The fall to 3% means that when we strip out the effects of the April sales tax, the real rate of inflation stands at a meagre 1%," said research analyst Joshua Mahony from Alpari UK. This is further away from the government's 2% target and down from the 1.1% rate in August.

Meanwhile, household spending dropped by a worse-than-expected 5.6% (August: -4.7%) and the jobless rate ticked up to 3.6% (August: 3.5%).

The dollar was near a seven-year high against the yen at 110.67, while Tokyo's Nikkei jumped over 5%.