Responding to the government’s call for deflation-fighting steps, the Bank of Japan said Wednesday it will expand liquidity by doubling its three-month loans to banks, introduced in December, to about ¥20 trillion.

The central bank also announced it will keep the benchmark interest rate at 0.1 percent, the level it has maintained since December 2008. The BOJ’s additional monetary easing aims to encourage a decline in loan interest rates by injecting more money into the financial system.

Under the funding program, the central bank has been extending to financial institutions three-month loans at a fixed interest rate of 0.1 percent against such collateral as government and corporate bonds.

The BOJ decided on the funding program at an emergency policy meeting in December, when global concerns stemming from the debt crisis in Dubai pushed up the yen against the dollar.

The bank announced the measure after its two-day Policy Board meeting that ended earlier in the day.

“The bank recognizes that it is a critical challenge for Japan’s economy to overcome deflation and return to a sustainable growth path with price stability,” the BOJ said in a statement.

“To this end, the central bank will continue to consistently make contributions.”

“In the conduct of monetary policy, the bank will continue to aim to maintain the extremely accommodative financial environment,” it said.

“With this step, I hope the interest rates will decline, and that current monetary easing steps will work further in the economy and have a favorable influence on banks’ lending rates, as well as corporate sentiment,” BOJ Gov. Masaaki Shirakawa said later in the day.

“I hope the step will support the private sector and ensure improvement in the economy and in prices,” he said.

But some economists are skeptical about whether the new step will have any measurable impact.

“The measure has already been factored in by the market. If the BOJ had not taken it, it would have instead had a negative impact on stock prices and the currency market,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

The step will not support the economy directly, but indirectly by shoring up the stock market, he said.

The BOJ’s decision came amid an increase in government pressure.

On Tuesday, Finance Minister Naoto Kan repeated a plea for the BOJ to work with the government to reverse a decline in prices as the government’s ability to expand fiscal measures is limited due to Japan’s massive fiscal debts.

Wednesday’s announcement was consistent with the expectations of many analysts, who are concerned deflation will linger.

Commenting on the nation’s economic strength, the BOJ said: “Japan’s economy is picking up mainly due to various policy measures taken at home and abroad, although there is not yet sufficient momentum to support a self-sustaining recovery in domestic private demand.”

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