Japan's central bank downgrades economic outlook

The Bank of Japan downgraded its outlook for Japan's economy Thursday due to the fallout from the March 11 earthquake and tsunami, and kept its key interest rate unchanged at near zero.

The bank also extended emergency loans to banks and other financial institutions in disaster-hit regions.

"Japan's economy is under strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster," the central bank said in a statement.

The magnitude 9.0 point earthquake and ensuing tsunami destroyed many factories in northern Japan, crippling supply chains that caused severe shortages of goods ranging from auto components to dairy products.

Since the earthquake the most powerful to ever hit Japan the central bank has pumped over 80 trillion yen ($937 billion US) into the financial system to stabilize the post-quake economy.

The bank also announced Thursday it would set up a program worth one trillion yen to offer cheap loans to financial institutions in the regions affected by the disasters.

In a widely expected decision, the central bank's nine-member policy board voted unanimously to keep the overnight call rate target at zero to 0.1 per cent. The bank has maintained the interest rate in the range of zero to 0.1 per cent since October in a bid to spur growth in Japan's sluggish economy.