Amid mounting calls to curtail the rise in long-term interest rates by expanding the money supply, the Bank of Japan on Friday instead decided to confront the problem by guiding down a key short-term interest rate to an astonishing historic low.

Specifically, the board decided to lower the unsecured overnight call money rate target from the current 0.25 percent to an unprecedented average low of 0.15 percent for the time being. The bank added that it will eventually guide the rate even lower.

The decision was made by a majority vote of the 9-member BOJ Policy Board, the central bank said. The policy board, however, will not touch the official discount rate, which has been maintained at a record low 0.5 percent since September 1995.

The policy board decided against a controversial proposal to expand the money supply by increasing its purchases of government bonds from the market. It also rejected suggestions that the BOJ underwrite new government bonds.

The central bank will maintain the current pace of purchasing outstanding long-term government bonds from the market, it said.

Several parties — including finance officials, politicians and U.S. government members — had been trying to convince the BOJ to buy more government bonds as a way to stem the recent rise in their yields. Those rising yields affect interest rates on business and housing loans as well.

Last week, the yield on the key 10-year government bonds marked a 1 1/2-year high at 2.3 percent in Tokyo.

The surge came amid concerns over a forthcoming massive bond issue to finance the government’s economic stimulus package. It is feared rising long-term interest rates will aggravate the economy by curtailing business investment.

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