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Oct 31, 1:29 AM EDT

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

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TOKYO (AP) -- Japan's central bank decided Friday to expand its asset purchases in a surprise move 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, citing an easing in inflation.

The Nikkei 225 stock index jumped more than 4 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.

As the U.S. winds down its own "quantitative easing," Japan's central bank was under pressure to increase stimulus to support growth as Prime Minister Shinzo Abe weighs approval of another sales tax hike next year.

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

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.

But a sales tax hike in April, from 5 percent to 8 percent, slowed the recovery that began in late 2012.

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.

Abe is due to decide before year-end on whether to raise the sales tax another 2 percentage points to 10 percent in 2105. 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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