By Daniel Hunter

One of Japan's leading banks, the Bank of Japan, has made the surprise move of expanding its asset purchase programme by 10 trillion yen (£83 billion).

The move to boost growth comes just a day after data showed that Japan's economy shrank by more-than-expected 2.3% in the last three months of 2011.

"The Bank will pursue powerful monetary easing by conducting its virtually zero interest rate policy and by implementing the Asset Purchase Program mainly through the purchase of financial assets," the bank said.

Chris Towner, director of FX advisory services at currency specialist HiFX, said Japan must be credited for their ability to compete in international markets, despite problems.

“The Bank of Japan has many battles to fight with deflation having eroded confidence over the past two decades and the strong yen biting at the competitiveness of its exporters," he said.

"In a way Japan must be admired for being able to compete in the international markets despite these issues, but it is quite clear to anyone today who has been a regular visitor to Japan for years that, despite deflation, it’s very expensive again and this is due to the strength of the yen.

“The Bank of Japan knows its issues; however has lacked the confidence in the past to attack them with bold action, but recently we have seen them stepping up in the size of their FX interventions and now targeting a 1% inflation rate as well as boosting their asset buying programme, Japan now seems to be preparing itself for a big battle.

“If successful this will lead to a weaker Japanese yen, but it needs to weaken quite dramatically (over 15%) for Japan to start to feel the benefit.”

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