TOKYO (Reuters) – The Bank of Japan expanded monetary stimulus on Monday and pledged to buy an unlimited amount of bonds to keep borrowing costs low, as the government tries to spend its way out of the growing economic pain from the coronavirus pandemic.

The step, which follows monetary easing only a month ago, puts the BOJ in line with other major central banks that have unleashed unprecedented amounts of monetary support as the health crisis stokes fears of a deep global recession.

BOJ Governor Haruhiko Kuroda said the central bank was ready to act further to fight the impact of the novel coronavirus, which he said could do more harm to the global economy than the 2008 collapse of Lehman Brothers.

“The current crisis could have a bigger negative impact than the Lehman shock. The government and the central bank obviously need to work together, particularly at a time like this,” Kuroda told a news conference.

The BOJ also sharply cut its economic forecast and projected inflation would fall well short of its 2% target for three more years, suggesting its near-term focus will be to battle the crisis.

To ease corporate funding strains, the BOJ said, it will boost three-fold the maximum amount of corporate bonds and commercial paper it buys to 20 trillion yen ($186 billion).

The central bank also clarified its commitment to buy unlimited amounts of government bonds by scrapping a loose guidance to buy them at an annual pace of 80 trillion yen.

“The BOJ will purchase the necessary amount of government bonds without setting an upper limit” to keep long-term interest rates around its 0% target, it said in a statement.

Kuroda rebuffed the view held by some analysts and politicians the BOJ’s bond buying was directly aimed at financing huge government spending.

He said the purpose was to keep yields stable and low, which could also boost the effect of fiscal spending.

“We aren’t monetising government debt,” he said. “But we also hope it will heighten the effect of a policy mix between fiscal and monetary measures.”

At the meeting on Monday, cut short by a day as a precaution against the spread of the pandemic, the BOJ kept its interest rate targets unchanged, as had been widely expected.

The central bank, however, offered to pay a 0.1% interest rate to financial institutions that tap its new loan programme to combat the pandemic to try to encourage commercial banks to boost lending to cash-strapped firms.

“The amount of assets the BOJ pledged to buy and the degree to which it loosened rules on its purchases were bigger than expected,” Mari Iwashita, chief market economist at Daiwa Securities said. “It just shows how concerned the central bank is.”

YIELD CURVE CONTROL

Under a policy dubbed yield curve control, the BOJ targets short-term interest rates at -0.1% and 10-year bond yields around 0%. It also buys government bonds and risky assets to pump money aggressively into the economy.

The BOJ’s rate review precedes those this week by the Federal Reserve and the European Central Bank, which have sailed into uncharted waters to keep their economies afloat.

Corporate funding costs have crept up in Japan despite the BOJ’s decision last month to boost buying of risky assets, including corporate bonds and commercial debt, and create a loan programme to assist funding of business hit by the pandemic.

Removing the guidance on its bond buying is largely a symbolic move. The BOJ has only purchased less than 20 trillion yen per year, as the bank’s huge presence in the market allows it to control yields with fewer purchases.

Still, it would help clarify to markets the BOJ’s resolve to buy as much bonds as needed, Kuroda said.

“We won’t hesitate to take additional monetary easing steps if needed,” he said, adding that interest rate cuts would be among options if the BOJ were to ease again.

Japan expanded a state of emergency this month that asks citizens to stay home and businesses to close, adding to woes for an economy already on the cusp of recession.

To ease the pain on the economy, the government boosted its spending package last week to a record $1.1 trillion yen, which will be paid for partly by issuing more bonds – straining Japan’s already tattered finances.