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* PM Kan, fighting to keep post, pressuring BOJ
(Adds analyst quotes)

By Leika Kihara

TOKYO, Aug 30 (Reuters) - The Bank of Japan began an
emergency meeting on Monday to ease monetary policy, bowing to
strong government pressure to try to curb a rise in the yen that
is threatening a fragile economic recovery.

But analysts questioned whether the central bank would take
steps bold enough to stem a rise in the Japanese currency that
hurts exports and may delay Japan's exit from deflation.

The most likely scenario is that the BOJ will expand a cheap
fixed-rate loan programme for banks, sources familiar with the
BOJ's thinking said, although any such move is already widely
expected and unlikely to weaken the yen for long.

"What won't make a difference is incremental policy shifts
along the same lines that we've had before," said Richard Jerram,
chief economist at Macquarie Securities (Japan) Limited.

Although Japanese nominal interest rates are at rock bottom,
deflation has boosted real rates, deterring investment and
driving up the yen as overseas investors seek real yields higher
than in other major economies.

"It is also obvious that this is clearly a political move.
The yen is where it was when the BOJ had their policy meeting in
August so you can't say this is because the yen is strong,"
Jerram said.

Prime Minister Naoto Kan is keen to look proactive on the
economy at a time when he faces a challenge from powerbroker
Ichiro Ozawa in a Sept. 14 party leadership vote that could split
the ruling party and create a policy vacuum.

The yen slipped broadly after the BOJ said it would hold the
emergency meeting, with the dollar rising to the day's high of
85.75 yen on trading platform EBS, up from around 85.35 yen
before the news reached the market. The dollar last stood at 85.7
yen, up about 0.6 percent from late trading on Friday.

The Nikkei stock average jumped 2.3 percent.

Japanese policymakers have tried to talk down the yen,
signalling the possibility of intervening in the market after the
Japanese currency hit a fresh 15-year high of 83.58 yen against
the dollar last week.

The government has also heightened pressure on the BOJ to do
its part. Kan said last week that he wanted to meet Shirakawa as
soon as he returned from his trip to the United States, and
request a "flexible" monetary policy response to the strong yen.

Shirakawa will meet with Kan on Monday to discuss economic
and market developments, NHK public TV said. The BOJ likely aimed
to hold the meeting before the two meet to avoid giving the
impression it was yielding to government pressure, analysts


The central bank's nine-member board started their meeting at
9:00 a.m. (0000 GMT). Governor Shirakawa will hold a news
conference at 2:30 p.m. (0530 GMT), the BOJ said.

Japan will likely need to intervene alone if it were to step
in to curb yen gains, as its Group of Seven counterparts, happy
with the benefits to exports from their weak currencies, are in
no mood for coordinated intervention.

Solo currency intervention, however, will not have much
effect in weakening the yen unless joined by aggressive monetary
easing by the BOJ, traders say.

The BOJ has been considering easing policy and lining up its
options, but had wanted to wait until its next regular rate
review on Sept. 6-7 for clearer evidence of the harm the yen's
rise was inflicting on business sentiment.

There is a slim possibility the BOJ will opt for aggressive
measures, such as increasing government bond purchases or cutting
its overnight rate call target, as some government officials are
already complaining that minor tweaks to the fund supply scheme
would not be enough.

But the BOJ will likely save such bold steps for when Japan's
economy slows further later this year on weakening export growth.

The BOJ set up the cheap funding scheme, which offers up to
20 trillion yen ($234.3 billion) in three-month loans at 0.1
percent, in December, at an emergency meeting held a day before
Shirakawa met with then Prime Minister Yukio Hatoyama. That
failed to boost bank lending but helped to push the yen further
away from a November high.

The central bank is expected to either boost the size of
money on offer to 30 trillion yen, or extend the duration of
fixed-rate loans to six months.

Such a step could push down interbank lending rates and
indirectly weaken the yen, although the impact would likely be
limited and short-lived with money market rates already very low.

In a sign markets are awash with more funds than banks can
swallow, the fund supply operation now draws bids nearly five
times the amount offered at each operation, down from about seven
times in the previous month.

Expanding the fund supply tool would therefore be more of a
token gesture to show that the central bank was doing what it
could to support the economy.

With short-term rates already very low, investors are pushing
down the longer end of the yield curve on expectations of further
monetary easing, causing it to flatten.

While the yield curve steepened on Friday as banks sold
superlong bonds to take profit, the curve is still at its
flattest in months, partly because of deep scepticism that Tokyo
has any tools left to fight deflation.

The BOJ last eased monetary policy in March, when it doubled
the size of the fixed-rate fund supply tool to 20 trillion yen.
($1=85.37 Yen)
(Additional reporting by Linda Sieg, Editing by Nathan Layne)