The Bank of Japan decided Tuesday to expand its purchases of banks' stockholdings by 50 percent to 3 trillion yen, a move calculated to help banks weather declines in share prices and to quiet some politicians.

The decision came in one of two Policy Board meetings called by Toshihiko Fukui, who took over as BOJ governor only last week.

The first was an emergency meeting designed to signal to the market that the central bank continues to manage any financial repercussions from the U.S.-led war in Iraq.

Tokyo share prices plunged to 20-year lows in the days leading up to the war, adding anxiety to a market already jittery as hobbled banks and other struggling companies limp toward the March 31 end of the fiscal year.

During that meeting -- the first presided over by Fukui and his two deputy governors, Toshiro Muto and Kazumasa Iwata -- members unanimously agreed to keep monetary policy unchanged.

The expansion of stock purchases from banks was decided during a "regular" board meeting that followed the emergency meeting, because the unusual measure is not categorized as a monetary policy.

"The strength of the financial system and stock price levels are meshed together," Fukui said, explaining the vulnerability of the financial system to stock markets.

In view of the war in Iraq threatening markets and a frail Japanese economy, "The BOJ decided to do what was necessary, without fear of any misunderstanding" that the central bank is engaging in an operation to maintain stock prices, he said.

A single bank will now be able to sell 750 billion yen of its stockholdings to the BOJ, up from 500 billion yen, through the end of September. This deadline will be extended by a year if necessary.

The BOJ has already purchased 1.03 trillion yen worth of stockholdings from banks, which must unload excess stocks from their books by September 2004 under the government's plan to reform the banking sector.

Analysts say the BOJ had a second motive in deciding to increase its share purchases -- to put itself in a better position to handle calls by politicians and bureaucrats to buy up high-risk assets to inflate prices.

Meanwhile, Fukui's act of calling the emergency meeting -- the first under the new Bank of Japan Law that came into effect in April 1998 -- won him points among politicians, who praised his quick response.

"The BOJ has made one decision in a very short time after coming under new leadership," Chief Cabinet Secretary Yasuo Fukuda said. "I would like to offer my respect to (Fukui's) decisiveness and action in seizing the moment."

But the decision on share purchases, forecast by media reports and analysts, caused hardly a ripple in the market. After rising slightly after the announcement, stocks echoed falls seen in the U.S. and Europe the day before, with the broad Topix index of listed stocks falling 2.3 percent to end at 812.29.

"He's being shrewd in how he uses the administrative tools at his disposal," said Hideo Kumano, senior economist at Dai-ichi Life Research Institute Inc., who awarded Fukui a mark of 80 percent for bringing together the differing views of the policy board. "But I'm disappointed that no new ideas were aired."

In deciding to maintain its monetary policy, the central bank will continue pumping funds into the current accounts that financial institutions keep at the BOJ.

The BOJ's goal is to keep the outstanding balance of these accounts, which the banks can use in their lending activities, between 15 trillion yen and 20 trillion yen. This range will increase to between 17 trillion yen and 22 trillion yen after April 1, when Japan Post will be established, taking over the state-run postal services.

The outstanding balance, however, has actually exceeded the target range, sitting at around 24 trillion yen.

The BOJ also decided to remove the five-day limit on emergency lending at the official discount rate of 0.1 percent. This is intended to prevent sudden bank failures that could result from cash shortages.

In addition, Fukui instructed his staff to strengthen the routes through which BOJ cash can reach the real economy and have an effect.

"I see how these (moves) might be necessary eventually," said Yasunari Ueno, chief market economist at Mizuho Securities Co. "But with short-term money markets this calm, did the BOJ have to hold an emergency meeting to make these decisions?"

Fukui called the emergency meeting "an exception among exceptions," adding it was an opportunity to formally discuss the stance of the policy board in the face of increased risks arising from the US-led war against Iraq.

Kumano of Dai-ichi Life Research Institute said the expansion in banks' share purchases may keep stock prices from sagging but is unlikely to have a lasting effect on banks' management or the economy in general. Analysts' simulations show the nation's seven major banks and banking groups are weighed down with between 4 trillion yen and 5 trillion yen in unrealized losses, with the Topix at 850.

Asked whether the BOJ can do more to help banks unwind cross-held shares, Fukui shook his head.

"Three trillion yen is the upper limit," Fukui said. "More would be close to impossible."

Two members of the nine-strong Policy Board opposed the decision to raise stock purchases, he said.