The Bank of Japan convened a two-day meeting of its Policy Board on Thursday to discuss ways of refining its credit-easing tools in a bid to ensure that its current quantitative-easing policy will not be undermined.

The board is likely to adopt a measure to increase the BOJ's outright purchases of long-term government bonds to 1 trillion yen per month from the current 800 billion yen per month, according to BOJ sources and market analysts.

This might help deal with the difficulty the BOJ is having in pumping enough excess cash into commercial banks that they can maintain combined current-account deposits in the target range of 10 trillion yen to 15 trillion yen.

That target has been in place since Dec. 15, but the central bank is finding it increasingly difficult to get the banks to take its bait.

Since the banks already have ample funds, they are putting forward few bids when the BOJ offers to buy their long-term government bonds.

What's more, the situation is likely to grow more acute.

Financial institutions are currently preparing for an expected shift in savings ahead of April 1, when the government places a 10 million yen cap on time deposits it guarantees if a bank fails.

This means fund demand will likely peter out after March, making things worse for the central bank.

If the BOJ allows the balance of current-account deposits to drop in tandem with the expected fall in demand, it could raise doubts over its pledge to maintain its quantitative credit-easing steps until deflation is eradicated.

Analysts say the situation is forcing the BOJ to utilize additional tools to facilitate fund supply.

But some analysts warn that by expanding outright purchases of long-term government bonds, the BOJ could trigger an uncontrollable issuance of government bonds and fuel worries about fiscal discipline, causing long-term interest rates to surge.

Nevertheless, political pressure is mounting on the BOJ to prove its commitment to fighting deflation -- a matter touched on in Monday's policy speech by Prime Minister Junichiro Koizumi when he indicated his resolve to work with the BOJ to prevent the economy from falling into a deflationary spiral.

Chief Cabinet Secretary Yasuo Fukuda said Wednesday, however, that the government has no immediate intention of urging the BOJ to take additional monetary easing steps.

At its previous meeting, Jan. 15-16, the Policy Board decided to widen the central bank's money-operation tools, giving it greater use of asset-backed commercial paper and asset-backed securities, while leaving unchanged the quantitative-easing policy.

On Dec. 19, the board adopted additional credit-easing steps, including injecting more funds into the banking system to raise the cash balance in current accounts to between 10 trillion yen and 15 trillion yen. The previous target was "more than 6 trillion yen."

It also decided in December to expand its outright purchases of long-term government bonds to 800 billion yen a month, up from 600 billion yen.