TOKYO - Japan's central bank said Tuesday it would inject 10 trillion yen (114 billion US dollars) in liquidity into financial markets to boost recovery from the country's worst post-war recession.

The Bank of Japan (BoJ) said it "decided to further enhance easy monetary conditions by introducing a new funds-supplying operation," adding it would also hold interest rates at super-low 0.1 percent to fight deflation.

"The bank recognises that it is a critical challenge for Japan's economy to overcome deflation and return to a sustainable growth path with price stability," the BoJ said in a statement.

"To this end, the bank will continue to do its utmost as central bank."

The funds would be lent at 0.1 percent to financial institutions against collateral such as government securities or corporate bonds, the bank said.

Japan has emerged this year from its worst post-war recession sparked by the global downturn, but the recovery has been threatened by deflation and a surging yen which makes its exports less competitive.

The government has urged the bank to take steps to help revive the economy.

The BoJ statement said that "while Japan's economy is picking up, there is not yet sufficient momentum to support self-sustaining recovery in business fixed investment and private consumption.

"As for the outlook, the pace of economic improvements is likely to remain moderate until around the middle of fiscal 2010."

The bank also warned that "there is a risk that recent international financial developments and foreign exchange market instability might pose adverse effects on economic activity."

- AFP/ir