The Bank of Japan expanded its asset-purchase program for thesecond time in two months, a move that failed to cheer investors asstocks slumped amid mounting evidence that the economy contractedlast quarter.

The fund will increase by 11 trillion yen ($138 billion) to 66trillion yen while a separate credit loan program will stay at 25trillion yen, the bank said in Tokyo, acting hours after datashowed the biggest decline in industrial output since last year'searthquake. The BOJ will also offer unlimited loans to banks toboost credit demand.

The Nikkei 225 Stock Average closed 1 percent lower and the yenstrengthened as faltering exports and waning domestic demandbolster the case for more easing in coming months after the bankforecast it will miss its inflation target in the next two fiscalyears. Economy Minister Seiji Maehara attended his second BOJmeeting today and, in a joint statement with Governor MasaakiShirakawa, said that the government “strongly expects” powerfuleasing until deflation is overcome.

“The easing hasn't ended,” said Hiroaki Muto, a senior economistat Sumitomo Mitsui Asset Management. “It's possible that the BOJwill next ease around January,” when it reviews its price andgrowth forecasts released today, he said.

All but one of 27 economists surveyed by Bloomberg News hadpredicted easing today, with the majority expecting a 10 trillionyen expansion. The bank expanded its asset-purchase fund by 10trillion yen on Sept. 19, making today the first time since May2003 that it has loosened twice in two months.

The yen gained 0.4 percent to 79.50 per dollar at 4:52 p.m. inTokyo after declining more than 2 percent this month. Strength inthe currency has eroded the sales and profits of the nation'sexporters, with the yen reaching a postwar high of 75.35 per dollarin October last year.

Price falls have continued since May, highlighting the bank'sstruggle to attain its 1 percent inflation target announced inFebruary.

The bank said today that it expects prices excluding fresh foodto rise by 0.8 percent in the fiscal year that begins in April2014, its first projection for that year, confirming that itexpects to miss its target in the next two fiscal years.

The central bank also said today it will offer unlimited loansat low interest rates to lenders to try to boost credit demandamong companies and households. The loans will be based on theovernight call rate, currently 0.1 percent, it said.

“The BOJ has unveiled similar lending facilities in the past,but they have never been effective in stimulating borrowingdemand,” said Hideo Kumano, chief economist at Dai- ichi LifeResearch Institute and a former BOJ official. “The new loan programwill probably have little impact.”

Rate Held

The BOJ maintained its benchmark interest rate between zero and0.1 percent and the amount of monthly bond purchases at 1.8trillion yen. The asset purchase fund has been its main policy toolsince its introduction in October 2010.

Japan's industrial production fell a more-than-expected 4.1percent in September from the previous month, the steepest sincelast year's earthquake and tsunami, data showed today before thebank's meeting. Exports dropped 10.3 percent from a year earlierand retail sales rose less than forecast in September, data showedthis month.

Honda Motor Co., Japan's third-largest carmaker, yesterday cutits full-year profit forecast after Chinese consumers shunnedJapanese brands amid a territorial dispute between Asia'stwo-biggest economies. Canon Inc., Nintendo Co. and Kawasaki HeavyIndustries Ltd. revised down their forecasts last week.

Japan announced 750 billion yen of fiscal stimulus on Oct. 26amid concerns over financing more spending, as opposition lawmakersblock a bill allowing the government to borrow 38.3 trillion yenfor this year's deficit amid a dispute over the timing of anelection.

Central banks from Australia to South Korea have reduced theirkey rates this month. Earlier today, India's central bank cutlenders' reserve requirements while leaving interest ratesunchanged. The International Monetary Fund trimmed its globalgrowth forecast to 3.3 percent this year as the euro area's debtcrisis threatens the world economy.

In the U.S., stock markets were prevented from opening by Sandy,the Atlantic Ocean's biggest-ever tropical storm. Strong winds andrain roared ashore late yesterday and disrupted commerce,transportation, utilities and government services from Boston toWashington.

In Europe, Spain's gross domestic product contracted 1.6 percentin the third quarter from a year earlier, Germany's unemploymentrate probably rose to an 11-month high of 6.9 percent in Octoberand euro-area consumer confidence hovered near the lowest levelsince 2009.

Bloomberg News