In a sign of its alarm over the economic outlook, the BoJ said it would buy corporate bonds rated A and higher from next month. It will extend its programmes to buy commercial paper and provide unlimited collateral-backed loans to financial institutions.

The moves highlight growing concerns that a spreading credit squeeze could deepen the downturn of the Japanese economy, which suffered its biggest contraction in 35 years in the last three months of last year.

“Economic conditions have deteriorated significantly and are likely to continue deteriorating,” the BoJ said in a statement after a monetary policy meeting at which it kept its key policy interest rate at 0.1 per cent. The BoJ added that Japan was likely to see prices falling by the spring.