The Bank of Japan on Thursday eased monetary policy by expanding asset purchases as the yen's strength and slow progress by European leaders in solving the region's debt crisis cloud the outlook for the country's fragile economy.

As widely expected, the central bank maintained its key interest rate at a range of zero to 0.1 percent by a unanimous vote, but decided to loosen policy by expanding asset purchases by 5 trillion yen (41 billion pound), to 20 trillion yen, with all of the increase in purchases of government bonds.

The decision was by a vote of eight to one, with board member Ryuzo Miyao calling for a bigger increase.

The BOJ will release its semi-annual outlook report at 3 p.m. (7:00 a.m. BST), which will outline its basic scenario on the economy and offer the bank's GDP and price projections for the three years until March 2014.

It is expected to cut its economic projections in the report, which serves as a basis for the future course of monetary policy.

Governor Masaaki Shirakawa will hold a news conference with his embargoed comments due sometime after 4:15 p.m. (8:15 a.m. BST).

The BOJ last eased policy in August by boosting asset purchases, on the same day Tokyo intervened in the currency market to stem the yen's sharp rise. It has stood pat on policy since then.

(Reporting by Leika Kihara and Rie Ishiguro; Editing by Edmund Klamann)