BOJ eases policy, to buy more bonds, sets near-term

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Most central banks set inflation targets to anchor expectations and prevent prices from rising too quickly, but in Japan's case an inflation goal acts as an incentive to pursue more aggressive easing to stop prices from declining.

"The BOJ apparently bent to political pressure, leaving the market with the impression of its vulnerability," said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance.

"If the Fed embarks on additional easing, the BOJ is likely to come under pressure again and again and it may tweak its asset purchase scheme and start buying government bonds with longer maturities."

The U.S. central bank last month took a historic step of setting an inflation target and extended its commitment to near zero rates, leaving the door open to more monetary easing that could further weaken the dollar and thus put the yen under renewed upward pressure.

Ten-year government bond futures jumped and the yen dipped as much as 0.4 percent in response to the BOJ's decisions.

As widely expected, the BOJ also left its key interest rate unchanged at a range of zero to 0.1 percent by a unanimous vote.

MORE TO COME

The government, worried the economy may not be robust enough to stomach tax increases proposed to fix stretched public finances, has been leaning on the central bank to help keep the yen in check and support Japan's fragile recovery from last year's earthquake, tsunami and nuclear crisis.

Tuesday's steps got mixed reviews with some analysts, praising the central bank for taking more forceful action and pre-empting risks that may lie ahead, while others worried that it was caving into political pressure.