The Bank of Japan today said it will buy one trillion yen (£7.49 billion) in corporate bonds from financial institutions, and extend lending programmes to try to get credit moving.

The country's economy is in freefall as exports collapse and its biggest companies face unprecedented losses. Bank Governor Masaaki Shirakawa and his colleagues said the bank will start buying bonds rated at least A from next month until September.

The bank kept the overnight lending rate at 0.1% by a unanimous vote. The recession is making it difficult for companies to raise finance by selling debt or shares, and banks are struggling to meet a rise in demand for loans.

The cost of protecting Japanese corporate debt against default soared to a record this week on concern bankruptcies will increase after the economy shrank last quarter by the most since the 1974 oil shock.

The bank this week said it will resume buying stocks owned by lenders on a measure Japan used between 2002 and 2004 to help them raise capital and lend more.