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Japan central bank unexpectedly expands asset purchases to shore up shaky recovery

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TOKYO — Japan's central bank expanded its asset purchases in a surprise move Friday to shore up sagging growth in the world's No. 3 economy.

The Bank of Japan said it would increase its asset purchases by between 10 trillion yen and 20 trillion yen ($90.7 billion to $181.3 billion) to about 80 trillion yen ($725 billion) annually.

The Nikkei 225 stock index jumped 5 percent and the dollar rose 1.2 percent against the yen after the unexpected decision.

Japan's economic recovery remained in the doldrums in September, as household spending fell, inflation edged lower and unemployment ticked up, according to data released Friday, as the BOJ held its policy meeting.

The central bank's announcement highlights divergent fortunes among major economies.

The U.S. Federal Reserve earlier this week announced it was ending its own extraordinary program of asset purchases, known as quantitative easing, which it instituted after the global recession to help the U.S. economy recover.

As that $4 trillion program wound down, Japan's central bank has come under pressure to increase stimulus to support growth as Prime Minister Shinzo Abe weighs approval of another sales tax hike next year.

The central bank's decision may encourage Abe to push ahead with the politically difficult choice. Surveys show more than 70 percent of the public are opposed to raising the tax, which is needed to help tame Japan's swollen government debt.

A sales tax hike in April, from 5 percent to 8 percent, slowed the recovery that began in late 2012. Abe is due to decide before the end of this year whether to raise the sales tax by another 2 percentage points to 10 percent.

PHOTO: FILE - In this Sept. 8, 2014 file photo, people cross a street in Tokyo. Japan’s economic recovery remained in the doldrums in September, as inflation edged lower and unemployment ticked up. The data were released Friday, Oct. 31, 2014 as the Bank of Japan held a monetary policy meeting. The central bank faces pressure to increase stimulus to support growth as Prime Minister Shinzo Abe weighs approval of a sales tax hike next year. (AP Photo/Koji Sasahara, File)
FILE - In this Sept. 8, 2014 file photo, people cross a street in Tokyo. Japan’s economic recovery remained in the doldrums in September, as inflation edged lower and unemployment ticked up. The data were released Friday, Oct. 31, 2014 as the Bank of Japan held a monetary policy meeting. The central bank faces pressure to increase stimulus to support growth as Prime Minister Shinzo Abe weighs approval of a sales tax hike next year. (AP Photo/Koji Sasahara, File)

In addition to stepping up asset purchases, the central bank said it would triple its purchases of exchange-traded funds and real estate investment trusts.

It said the monetary loosening would continue as long as needed to attain an inflation target of 2 percent.

The bank's main decisions on expanding the scope of monetary easing passed by a 5-4 majority, indicating differences of opinion among members of the bank's policy board.

The BOJ said in a statement it "will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate."

The central bank's announcement caught most analysts by surprise.

"We had expected the bank to announce additional stimulus only in 2015," Marcel Thieliant, an economist with Capital Economics, said in a commentary.

Abe and the central bank have sought to spur inflation as a way of encouraging consumers and businesses to spend more and thus support faster growth.

Core inflation, excluding volatile food prices, was at 3.0 percent in September, down from 3.1 percent in August. Unemployment rose to 3.6 percent from 3.5 percent.

The government reported that household spending fell 5.6 percent from a year earlier in September, though it rose 1.5 percent from August. Household incomes, meanwhile, fell by 6 percent from a year earlier in real terms, excluding inflation.

When the increased costs from the tax hike are figured in, inflation remains below the target rate of 2 percent. For Japan, which relies heavily on imports of crude oil and natural gas, a moderation in oil prices has helped reduce some price pressure. But the data released Friday showed inflation, excluding both food and energy prices, has remained flat at 2.3 percent since June.

The tax increases are needed to help counter Japan's huge public debt, but the hike is opposed by a majority of the public.

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PHOTO: A man rests on a street near a train station in Tokyo, Friday, Oct. 31, 2014. Japan's economic recovery remained in the doldrums in September, as household spending fell, inflation edged lower and unemployment ticked up, according to data released Friday, as the Bank of Japan held its policy meeting. (AP Photo/Koji Sasahara)
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