TOKYO, Japan — JAPAN’S central bank decided yesterday to further ease monetary policy by massaging the economy with cheap loans amid government pressure to respond to a surging yen and falling consumer prices.

In an emergency meeting, the Bank of Japan voted unanimously to offer about 10 trillion yen (US$115.8 billion) in short-term loans to commercial banks to boost liquidity. It also maintained its key interest rate at a super low 0.1 per cent.

The yen has climbed sharply in recent days, and government officials have criticised the central bank as too complacent. The bank has also been under pressure to do something about deflation after months of falling prices.

The dollar, which fell to a 14-year low of 84.81 yen on Friday, jumped above the 87-yen line on news of the meeting. Shares rallied with the Nikkei 225 stock average climbing 2.4 per cent to 9,572.20. Trading closed before the BOJ’s announcements, which analysts dismissed as not bold enough to do much good for the economy.

The central bank vowed to do its “utmost” to battle deflation and bolster the world’s second biggest economy, which has emerged from recession but remains fragile.

Bank of Japan Governor Massaki Shirakawa denied that political pressure had influenced the board.

“We took this step today because of concerns over recent developments in the global financial situation, as well as unstable currency movements that may have a negative impact on the economy,” Shirakawa told reporters.

The Bank of Japan will provide three-month loans at a fixed rate of 0.1 per cent. It will accept as collateral corporate bonds, Japanese government bonds, commercial paper and loans on deeds.

The central bank said the programme aims to amplify the effects of monetary easing and encourage longer-term interest rates in the money market to decline.

The government said yesterday that it will compile additional stimulus measures totalling at least 2.7 trillion yen (US$31 billion) to bolster employment and growth.

Top government spokesman Hirofumi Hirano welcomed the central bank’s decision. The board “acted appropriately and smoothly to deal with the changes of the economic situation in tandem with our economic steps”, he said, according to Kyodo News agency.

But analysts expressed disappointment that the central bank did not do more.

When the meeting was announced in the morning, markets brightened in anticipation of an interest rate cut or an expansion of long-term Japanese government bonds purchases by the central bank.

Christian Carrillo, senior rates strategist at Societe Generale Securities in Tokyo, said Bank of Japan’s new lending facility, while somewhat helpful, is a “weak” measure.

“What is the purpose of this?” he said. “The purpose is doing as little as possible, because they don’t really want to help the government.”

Shirakawa and Prime Minister Yukio Hatoyama are scheduled to hold talks Wednesday.

Recent signs point to a mixed outlook for the economy. Gross domestic product has expanded in the past two quarters but factory output is now slowing again. Wages continue to fall, and deflation threatens to undermine the nascent recovery.