The Bank of Japan on Tuesday adopted a two-percent inflation target and set out plans for indefinite monetary easing in a policy shift that Japan's new premier hailed as "epoch making".
The moves -- set out in a rare joint statement with the government -- followed stern calls from the country's new administration led by Shinzo Abe to become more aggressive in kickstarting the nation's anaemic economy.
"In terms of a bold review of monetary policy, this statement is epoch-making," Abe said after the BoJ wrapped up a two-day policy meeting.
Japan's economic revitalisation minister Akira Amari echoed his boss, describing the government-central bank cooperation as an "historic moment".
Some observers were less convinced, with Bank of Tokyo-Mitsubishi UFJ economist Takahiro Sekido saying Tokyo's involvement in setting policy marked a major shift but the "contents (of the plan) are not epoch-making".
"The outcome showed the BoJ yielded to political pressure but was still sticking to its own policies," Sekido added.
Japan's new government, led by the hawkish Abe, swept to power last month on a pledge to fix the economy with big spending and to pressure the BoJ into aggressive action to kickstart the world's third-largest economy.
Tensions have run high between BoJ policymakers and Abe's administration, with the 58-year-old premier having openly said he would like to turf out BoJ Governor Masaaki Shirakawa, whose term ends in April, and threatening to change a law mandating the bank's independence if it does not fall into line.
The yen strengthened Tuesday on the widely expected moves, but the unit has been in freefall for weeks as markets bet that the BoJ would inflate its 101 trillion yen ($1.13 trillion) asset-buying programme, its main policy tool.
"The Bank will introduce a method of purchasing... financial assets every month without setting any termination date," it said Tuesday.
That was the first time in nearly a decade that the BoJ has announced an expansion of monetary policy in consecutive meetings.
The BoJ's asset purchases usually come with a fixed expiry date, but the new scheme will see about 13 trillion yen in monthly purchases "for some time" starting from next year, it said.
The policy is similar to the US Federal Reserve's unlimited monthly bond-buying programme, known as quantitative easing, unveiled in September.
Also Tuesday, the central bank raised its economic growth forecast for the fiscal year to March 2014, to 2.3 percent from a previous 1.6 percent estimate, and held interest rates at an ultra-low zero to 0.1 percent.
Switching from an inflation "goal" to a more explicit "target" was driven by the "importance of flexibility in the conduct of monetary policy in Japan", the BoJ said.
However, two BoJ policy board members voted against the new inflation target demanded by Abe.
"The Bank of Japan at least offered a gesture to work together with the government to tackle deflation, mainly by adjusting its rhetoric," said Yoshikiyo Shimamine, chief economist with Dai-ichi Life Research Institute.
London-based Capital Economics said the vague timeline for the BoJ's "ambitious" inflation target "makes that commitment much less bold".
"The Bank is already committed to end deflation and similar statements have been made before," it said.
German central bank chief Jens Weidmann on Monday decried government meddling in central banks' affairs, citing Japan and Hungary.
"We are witnessing disturbing abuses... where the new government is interfering massively in the affairs of the central bank, calling forcefully for a more aggressive monetary policy," he said.
Japan has been beset by deflation since the 1990s. It continues to hurt the economy as falling prices cut into corporate profits, leading firms to slash jobs and put off growth-generating capital investment.