US stock indexes have climbed back to record highs after a surprise stimulus package from Japan’s central bank.Just two weeks after the US market had its biggest slump in two years, the Dow Jones industrial average rose 194 points – 1.1% – to close at an all-time high of 17,390 on Friday.

The Standard & Poor’s 500 reached its own record, climbing 1.2% to 2,017 and the Nasdaq rose 1.4% – 64 points – to 4,630.

In the same week that the US Federal Reserve confirmed the end of its third round of quantitative easing, the Bank of Japan (BoJ) said it would increase its asset purchases by between 10 trillion yen and 20 trillion yen (£57bn to £114bn) to around 80 trillion yen (£454bn) annually.

The bank also announced it would triple its purchases of exchange-traded funds and real estate investment trusts, saying the loosening of monetary policy would continue as long as was needed to attain an inflation target of 2%.

Recent data shows the world’s third-largest economy remains in a slump, with falling household spending and rising unemployment.

European markets also followed suit, with the FTSE 100 closing up 82.92 points, 1.28%, at 6,546.47.

BoJ governor, Haruhiko Kuroda, said: “We can say the Japanese economy is now at a critical moment in its process of getting out of deflation.

“The measures this time show the Bank of Japan’s unwavering determination to exit deflation.”

Deflation has dogged Japan’s economy for two decades.

The measures followed the publication of the country’s key economic indicators for September, which showed inflation and household spending both falling with unemployment rising.

Japan’s central bank was under pressure to increase stimulus to support growth as Prime Minister Shinzo Abe weighs approval of another sales tax hike next year.

He and the central bank have sought to spur inflation as a way of encouraging consumers and businesses to spend more and thus support faster growth.

But a sales tax hike in April, from 5% to 8%, slowed a recovery that began in late 2012.

He is due to decide before the end of the year whether to raise the tax to 10% in 2105.

Economists say Japan needs to counter a huge public debt mountain of more than one quadrillion yen (£6.5trn) but increases have proved deeply unpopular.

The bank’s action also helped the yen weaken further against the dollar – to a seven-year low – with a gradual weakening of the currency a crucial factor in a return to recent profits growth among many Japanese exporters.

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