THE BANK of Japan yesterday stepped up measures to help embattled companies suffering in the credit crisis, with plans to buy up to 1,000 billion yen (€8.38 billion) in corporate bonds and extend its emergency purchases of other assets from financial institutions. In a sign of its alarm over the economic outlook, the bank 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 bank said after a monetary policy meeting at which it kept its key policy interest rate at 0.1 per cent.

The bank said Japan was likely to see prices falling by the spring.

The cabinet office later cut its assessment of the economy’s direction for a fifth consecutive month.

“The economy is worsening rapidly and is in a severe state,” it said. In January, it said only that the economy was “worsening rapidly”.