The Bank of Japan said Thursday it will buy up to ¥1 trillion worth of corporate bonds held by financial institutions amid the deepening recession.

After its two-day Policy Board meeting, the BOJ also said it will extend the measures already in place to keep credit flowing.

But with little room left for a further rate cut, the BOJ said it will maintain its key interest rate at 0.1 percent.

"The situation over corporate financing is very severe," BOJ Gov. Masaaki Shirakawa said at a news conference, vowing the central bank will continue to do its utmost to help the economy return to a sustainable growth path.

The BOJ decided to begin purchasing from March corporate bonds rated A or higher and with a residual maturity of up to one year to facilitate corporate financing and ensure stability in financial markets.

To help longer-term interest rates decline and relieve firms' funding concerns, the BOJ will expand special operations to supply funds by increasing their frequency from twice a month to once a week, and extending the period until the end of September.

The period of outright purchase of commercial paper from financial institutions is now extended to September.

Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management, said the decision fell within analysts' earlier projections.

"There are many extensions of the time (of temporary measures in the BOJ's latest decision)," Muto said. "The impact (upon the market) is weak."