The Bank of Japan has extended its emergency measures to pump credit into companies for a time span of additional three months as it has downgraded its economic forecast for the current financial year.

Japan's central bank now expects the economy to shrink 3.4% for the fiscal year ending in March 2011 as compared to previous forecast of 3.1%.

Although, as per Japan's central bank's statement economic conditions in Japan have stopped worsening, yet fixed investment in businesses is on the decline. The bank has reserved the benchmark overnight lending rate at 0.1% to provide easy loans to companies.

In the previous quarter, the economy of Japan improved at an annual 2.4% pace subsequent to recording a drop of 14.2% in the first quarter.

The bank said it would continue purchasing corporate bonds plus commercial paper from financial institutions and will maintain extending loans.

Nevertheless Japan's central bank upgraded its forecast for the core consumer price index drop from 1.5% to 1.3%.