The Bank of Japan (BOJ) on Thursday embarked on an aggressive monetary policy to end years of deflation in the world's third largest economy, pledging to double its government bond holdings in two years.
The central bank concluded a two-day policy meeting, the first under new Governor Haruhiko Kuroda, with a statement that it would pursue quantitative easing as long as it needed to achieve its 2 percent inflation target.
The BOJ said it would double its holdings of long-term government bonds and exchange-traded funds and purchase Japanese government bonds (JGBs) off all maturities.
It also plans to bring forward the timing of open-ended asset purchases, said it was likely to buy 7 trillion yen in long-term JGBs a month and would move its target for setting policy to base money from the current overnight call rate.
Markets welcomed radical departure in BOJ policy. The benchmark Nikkei stock index reversed its losses to rally more than 2 percent and the yen weakened almost 2 percent to about 95.55 per dollar, having traded around 93.50 just before the decision.
Japanese shares have surged since mid-November and the Nikkei on Wednesday enjoyed its biggest one-day rise in two months on expectations for aggressive monetary easing.
Those expectations have also knocked the yen down about 16 percent against the dollar since mid-November, although the currency had risen in recent days on some caution as to whether Kuroda would be able to build a consensus among the nine members of the BOJ policy board for an unorthodox monetary policy.
Significantly then, the BOJ said its decisions were made unanimously.
Japan has suffered from persistent deflation and has slipped in and out of recession in recent years.
Prime Minister Shinzo Abe, whose ruling Liberal Democratic Party returned to power following elections in December, has pledged to revive the Japanese economy and pushing for a much bolder monetary policy than the BOJ has pursued in the past is part of his plan.
Kuroda has pledged to do whatever it takes to achieve the 2 percent inflation target, adopted by the central bank in January, within two years.
There is some skepticism among economists as to whether the target can be achieved. Jesper Koll, head of Japanese equity research at JPMorgan Securities, believes it can be.
"You've got credit growth, you've got demand for credit and you will find that within 15 to 18 months, consumer price inflation in Japan will be well in excess of 1 percent," he said.
Latest data shows that Japan's core consumer prices fell 0.3 percent in February from a year earlier.
Kuroda will hold a news conference later in the day. The BOJ meets again on April 26.