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The Bank of Japan on Tuesday announced a new measure of quantitative monetary easing “in a broad sense” as the Japanese economy faces deflation and the yen rises against the U.S. dollar. It decided to inject about ¥10 trillion into the financial market by lending funds to financial institutions for three months at a fixed interest rate of 0.1 percent against collateral such as government bonds and corporate debentures. It will also keep the bank’s short-term interest rate unchanged at 0.1 percent. The decision, the BOJ’s response to a government call for further monetary easing, represents a turnabout of the central bank’s policy stance.

In making public its monthly economic report for November, the government had announced that the economy was in a state of mild deflation. But, at the time, BOJ Gov. Masaaki Shirakawa appeared reluctant to take another monetary-easing step. He said that merely increasing liquidity would not lead to price rises, hinting disagreement with the view that the economy risked falling into a deflationary spiral. Thus the government’s and BOJ’s perceptions of Japan’s economic conditions differed.

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