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January 22 2013, 7:27PM

Tokyo stocks have closed 0.35 per cent down after the Bank of Japan (BoJ) set out plans for indefinite monetary easing and bowed to government pressure to adopt a two per cent inflation target.

The benchmark Nikkei 225 index ended down 37.81 points at 10,709.93, while the broader Topix index of all first-section shares was off 0.44 per cent, or 4.01 points, at 901.15.

The Nikkei briefly spiked into positive territory after the BoJ's widely expected move but fell back as the yen rose against the dollar and euro.

The greenback fetched Y89.13 in Tokyo afternoon trade, against Y89.50 in Europe on Monday. US markets were closed for a public holiday.

The euro fell to Y118.98 from Y119.20 in Europe and rose to $US1.3349 from $US1.3320.

After a two-day meeting, the Bank of Japan adopted the inflation target demanded by the new government to tackle Japan's long-running deflation, while it also launched an unlimited asset purchase scheme to kickstart the limp economy.

"The bank will pursue aggressive monetary easing ... through a virtually zero interest rate policy and purchases of financial assets," it said.

The BoJ's asset purchases usually come with a fixed expiry date, but the new program will see Y13 trillion in monthly purchases "for some time" after its launch next year, the bank said.

The scheme is similar to the US Federal Reserve's unlimited monthly bond-buying, known as quantitative easing, started in September.

The yen has been in a steep decline for weeks as markets bet the BoJ would inflate its Y101 trillion asset-buying, its main policy tool. It was the first time in nearly a decade the bank has expanded monetary policy in consecutive meetings.

It was the bank's fourth major policy move since September.

"Upon closer review, the BoJ's plan had already been so well telegraphed into the market that merely meeting expectations did not cut it for investors," an equity trading director at a foreign brokerage told Dow Jones Newswires.

"In the end, while the yen weakening over the last two months has been nice to see - and especially welcome for exporters' margins - key US and European growth needs to return to help corporate fundamentals to improve."

The trader added: "Since mid-November, in dollar-adjusted terms, the Nikkei is up less than 12 per cent. That's still not enough to pull the bigger long-only foreign players - the pension funds and such - off the fence."

Shares linked to Boeing's troubled Dreamliner faced selling pressure.

Japan Airlines lost 0.54 per cent to Y3,635, while rival All Nippon Airways rose 0.55 per cent at Y180.

The 787 suffered a series of glitches earlier this month, prompting a global alert from the US Federal Aviation Administration that led to the worldwide grounding of all 50 of the planes in operation.

GS Yuasa, which makes batteries at the centre of an ongoing probe, slipped 1.88 per cent to Y312.

Olympus jumped 6.6 per cent to Y1,985 on hopes the camera and medical equipment maker would be taken off the Tokyo Stock Exchange's "supervisory post" that signals a possible delisting.

The company was put on the list after a high-profile accounting scandal.