Bank of Japan begins retreat from credit markets

TOKYO, Oct 30 - A divided Bank of Japan began withdrawing from credit markets on Friday but extended by three months a key loan scheme in the face of government pressure to support corporate borrowing until the economy strengthens.

The government has in recent days acknowledged the BOJ is responsible for its own actions, but has kept up pressure for it to keep interest rates very low to support a fragile economy.

The central bank decided to end buying of commercial paper and corporate bonds in December.

It extended its more widely used programme of offering loans to banks at 0.1 percent in exchange for collateral until the end of March, but then to end it.

Board member Atsushi Mizuno opposed the BOJ's decision to end its buying of corporate bonds in December and its move to end its low-interest loan programme for banks in March.

As widely expected, the BOJ kept its benchmark interest rate target at 0.1 percent by a unanimous vote.

Governor Masaaki Shirakawa will hold an embargoed news conference, with his comments expected to come out some time around 4:15 p.m. (0715 GMT).

The BOJ has kept interest rates near zero and extended in July the emergency measures put in place in several stages from December last year to February this year.

But with credit markets on the mend and auctions for its corporate debt purchases barely drawing any bids, the BOJ has been seeking an exit from the emergency steps.

Central banks around the world have begun debating how and when to phase out their emergency steps to contain the damage wrought by the worst global financial crisis in decades.