BoJ to take new steps to aid economy, fight deflation

The Bank of Japan (BoJ) decided to take new steps at an unscheduled meeting after the country's prime minister had warned that deflation and a surging yen threatened to erase nascent gains in economic activity.

The BoJ will not return to its full-blown policy of quantitative easing - pumping excess reserves into the financial system, over and above what is needed to keep rates at near zero - that was used to fight deflation earlier in the decade.

But it does plan to supply additional funds to the economy, which the bank "characterized as quantitative easing in the broad sense of the term, as it is aimed at creating an environment with ample liquidity," according to a leading Japanese financial daily.

The bursting of the Japanese stock and real estate bubbles in the early 1990s led to a stagnant economy that has lasted almost 20 years. A strong yen and feeble domestic demand helped produce a deflationary environment in the early part of the decade, which encouraged policymakers in the US to take much more aggressive action during the current economic debacle that unfolded last year.

Now is not the time to be tepid.

The BoJ voted to hold its overnight lending rate at 0.1% and avoided any direct comments on the strong yen.