TOKYO, Dec 18 — The Bank of Japan today extended its fund-aid scheme for firms hit by the coronavirus pandemic and pledged to begin an examination on more effective ways to achieve its 2 per cent target, as a renewed spike in infections threatened to undermine a fragile recovery.

As widely expected, the central bank kept monetary policy steady including its pledge to guide short-term interest rates at -0.1 per cent and 10-year bond yields around zero.

At the two-day rate review that ended today, the BOJ extended by six months the March 2021 deadline for a range of steps aimed at pumping money to pandemic-hit firms.

In a surprise move, the central bank also said it will begin looking into better ways to achieve its elusive inflation target and release its findings in March.

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“Given the economy and prices are projected to remain under downward pressure for a prolonged period due to the impact of Covid-19, the BOJ will conduct an assessment on further effective and sustainable monetary easing,” it said in a statement.

Data released earlier in the day showed core consumer prices dropped at their fastest pace in a decade in November, stoking fears of a return to deflation and keeping policymakers under pressure to take stronger steps to prop up growth.

The BOJ said it will not change its yield curve control or quantitative easing framework.

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BOJ Governor Haruhiko Kuroda will hold a news conference at 3.30pm (0630GMT) to explain the policy decision.

With the pandemic still hurting the economy, many market players had expected the BOJ to extend its fund-aid programme, deployed in March through May to deal with the immediate hit from Covid-19, will be enough to underpin a recovery.

The package includes increased purchases of corporate debt and a lending scheme to channel money via banks to small firms.

Japan's economy rebounded in July-September from its worst postwar contraction in the second quarter, though the third wave of infections is dampening prospects for a strong revival.

The government announced this month a fresh $708 billion spending package to speed up the recovery, bringing the combined value of Japan's pandemic-related spending to about US$3 trillion. — Reuters