The Bank of Japan began withdrawing from credit markets on Friday but extended by three months a key loan scheme in the face of government pressure to support corporate borrowing until the economy strengthens.

In a widely expected move, the BOJ decided to end its buying of commercial paper in December, and in a 7-1 vote it also chose to end its buying of corporate bonds in December, with board member Atsushi Mizuno opposing the move.

But euroyen futures nudged lower on the bank's announcement that while the widely used low interest rate loan programme will be extended by three months, it will be terminated after the new deadline expires in March next year.

Bond markets and analysts took the decision mostly in their stride.

"Monetary policy needs to be flexible, so it makes sense for the BOJ to end its buying of commercial paper and corporate bonds as they have drawn few bids," said Susumu Kato, chief economist at Calyon Securities.

Three-month euroyen futures ticked down to stand unchanged on the day after the BOJ decision. The June contract was flat at 99.515 from about 99.520 beforehand.

To fend off criticism that its moves could hurt Japan's fragile economy, the BOJ said it would continue to provide ample liquidity through its regular market operations even after the low rate loan programme expires in March.

The bank also voted unanimously to keep interest rates steady at 0.1 percent.

Atsushi Mizuno, who holds the most pessimistic view about the economy and whose term at the board expires in December, voted against ending the BOJ's corporate bond buying and the low rate loan programme but not against ending its commercial paper buying.

The BOJ's CP buying auction on Oct. 23 drew no bids for the third time in a row, and issuance rates are now lower than the cost of government borrowing, which BOJ officials have pointed to as the market-distorting drawback of maintaining the programme too long.

Central banks around the world have begun debating how and when to phase out their emergency steps to contain the damage wrought by the worst global financial crisis in decades.

But the government has pressed the BOJ to continue its corporate debt buying and other measures the central bank says are no longer necessary because credit markets have largely recovered from the shock of the global financial crisis.

That pressure is unlikely to end anytime soon.

"The government always puts on pressure. You can't tell a dog not to bark," said Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Securities.

In a sign weak demand is playing an increasing part in pushing down prices, the so-called core-core consumer price index, which strips out food and energy costs, fell 1.0 percent in September from a year ago, larger than than the 0.9 percent seen in the year to August.

The BOJ has nudged rates near zero and in July it extended the emergency measures it put in place in several stages from December last year through February this year.

BOJ officials won't admit that government pressure could influence its monetary policy decisions. But they do want to work closely with the government, and they have got the message that it isn't happy about the BOJ's view of the economy.