TOKYO (AP) -- Japan's central bank expanded a government bond-buying program Tuesday, vowing to spur growth as it further downgraded the country's economic outlook following declines in industrial output and household spending in September.
Under heavy pressure to do more to help rid the economy of debilitating deflation, the Bank of Japan's policy board voted unanimously to increase the asset purchasing program by 11 trillion yen ($139 billion) to 91 trillion yen ($1.15 trillion).
"The critical challenge for Japan's economy is to overcome deflation as early as possible and to return to a sustainable growth path with price stability," the government and central bank said in a joint statement.
Both sides pledged their "utmost efforts to address this challenge."
The central bank decided against any change in its key interest rate, which remains at 0 percent to 0.1 percent.
The bond-buying program is intended to encourage borrowing and spending and help make Japan's exports more competitive. But fresh funding measures to stimulate bank lending, also announced Tuesday, could offer more relief, Capital Economics said in an analysis.
"The bank is providing the backstop to all lending in Japan," it said. But since Japan's problem is not a lack of supply of credit, but falling business borrowing, "it is not a game changer," it said.
In its revised outlook the central bank said the economy is expected to grow only 1.6 percent in this fiscal year, which ends in March, and 0.4 percent in the next. Earlier forecasts were for growth of over 2 percent.
Consumer prices are expected to rise by 0.4 percent this year, well below the long-term 1 percent target, and by 0.8 percent in the following, it said.
A fresh barrage of negative data on Japan's failing recovery Tuesday pumped up pressure for the central bank to act to help revive the world's third-largest economy.
Japan's industrial output contracted by 4.1 percent in September from August and 8.1 percent from a year earlier as automakers and steel mills cut production due to shrinking demand and antagonisms with China, according to the Ministry of Economy, Trade and Industry.
Household spending fell an average of 0.9 percent in September from a year earlier, despite a slight gain in household income. Stronger spending by Japanese households is critical to the recovery, given that private consumption accounts for almost 60 percent of Japan's total economic activity, and the outlook for exports remains bleak.
The recovery that followed Japan's March 2011 disasters has been doused by slowing global growth, and flaring tensions with China over disputed islands in the East China Sea have further crimped demand, especially for big-ticket items like cars. Slowing growth in China, meanwhile, has hit demand for industrial inputs like steel and machinery.
"Industrial production is on a downward trend," the ministry said, forecasting a further decline in October, followed by a rebound in November.
Embattled Prime Minister Yoshihiko Noda convened an extraordinary session of the legislature on Monday, appealing to the opposition Liberal Democratic Party to cooperate in passing a bill authorizing bond sales to finance the growing deficit.
Japan's Cabinet approved a 423 billion yen ($5.3 billion) emergency stimulus package on Friday, double the size originally expected. The government was obliged to dip into reserves to pay for the new stimulus, since its leeway to boost spending is limited by a legislative standoff preventing issuance of some 38.3 trillion yen ($480 billion) in deficit financing.
As it confronts that "fiscal cliff," which could raise the country's borrowing costs, Japan already leads industrial nations with government debt amounting to more than twice the country's gross domestic product.
"We still have work to do!" Noda said Monday in a speech that repeatedly reminded lawmakers of their responsibility toward future generations. Funding shortfalls threaten to affect crucial government services, he warned.
Noda's Democratic Party of Japan is struggling as the Liberal Democrats gain in power. He was obliged to present his policy speech Monday in the House of Representatives after the LDP, which controls the upper house of the parliament, blocked him from delivering the speech in that chamber.
Apart from the political mess, exports, usually a bright spot for Japan's economy, are faltering as the prolonged crisis in Europe crimps demand. Another problem is the persistent strength of the yen, which makes products made in Japan relatively more expensive in overseas markets.
Shipments of passenger cars dropped 12.6 percent in September from August and 13.2 percent from a year earlier, METI reported. Shipments of virtually all other products also fell.
Jobless rate figures for September likewise offered little encouragement, as the government reported the seasonally adjusted unemployment rate was 4.2 percent in September, unchanged from August.
The ratio of job offers to seekers fell to 0.81 from 0.83 in August, meaning there were 81 jobs for every 100 job seekers.