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The yen bounced back to day highs after the central bank expanded a scheme supplying cheap fixed-rate loans to banks, a move seen by investors as a symbolic gesture that will do little to halt the currencys climb that hurts exports and may prolong deflation.

"Todays move is not a bold move," said Simon Wong, regional economist at Standard Chartered Bank in Hong Kong. "If the yen continues to appreciate, say it appreciates beyond the 80 level, that could trigger more direct intervention at some point. We cannot rule out a direct intervention at this point."

The decision follows weeks of efforts by Tokyos policymakers to talk down the yen, signaling the possibility of intervening in the market after the Japanese currency hit a 15-year high of 83.58 yen against the dollar last week. The government had also heightened pressure on the BOJ to do its part.

The central bank said that by increasing the volume and duration of funds made available to banks it aimed to lower money market interest rates -- something that in the past also helped ease the upward pressure on the yen.

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 that are higher than those in other major economies.

PM KAN KEEN TO LOOK ACTIVE

The yens rebound pulled the Nikkei share average off its peaks and helped Japanese government bond futures bounce back from an early plunge.

Prime Minister Naoto Kan, whose Democratic Party swept to power a year ago but was thrashed in a July upper house poll, is keen to show that he is doing something about the economy ahead of a challenge from powerbroker Ichiro Ozawa in a September 14 party leadership vote that could split the party.

Kan was to meet BOJ Governor Masaaki Shirakawa after the policy board meeting, and cabinet ministers were to decide the basic thrust of additional measures to help the slowing economy at a meeting later in the day.

"The governments fiscal policy and the BOJs monetary policy should be in sync to send a strong message," Trade Minister Masayuki Naoshima told reporters.

But Japans huge public debt, now twice the size of the economy, limits Tokyos options, and the government is expected to propose shifting funds around rather than announce new substantial spending.

Governor Shirakawa will hold a news conference at 2:30 p.m. 0530 GMT, the BOJ said.

FLYING SOLO?

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.

In Mondays move, the central bank increased the volume of money available to banks under its fixed-rate fund supply operation to 30 trillion yen $351 billion from 20 trillion yen.

It also put in place a six-month fund operation in addition to the three-month loan programme already in place.

Of the 30 trillion yen, 10 trillion yen will be the six-month fund operation, BOJ said. The decision was by an 8-1 vote, with board member Miyako Suda dissenting.

The central bank, as widely expected, maintained its overnight core rate target at 0.1 percent by a unanimous vote.

The BOJ launched the funding scheme, which offers loans at 0.1 percent, in December. That failed to boost bank lending but helped to push the yen further away from a November high.

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

Writing by Leika Kihara and Linda Sieg; additional reporting by Tetsushi Kajimoto; Editing by Edmund Klamann and Tomasz Janowski

The National Association for Business Economics said on Monday that 60 percent of 242 members surveyed from July 30-Aug 10 said monetary policy was "appropriate" for the conditions the economy currently faces.

The Fed kept benchmark overnight interest rates steady in a zero to 0.25 percentage point range at its last policy meeting on August 10 and renewed a pledge to keep them low for an extended period.

Some 67 percent felt the Feds decision at the August 10 meeting to use cash from maturing mortgage bonds it holds to buy more government debt was helpful in the face of a weakening economy. That move keeps the Feds balance sheet from running down,

In the near term, 45 percent of respondents believed monetary policy risks now were tilted toward deflation, or falling prices, in the short run but toward inflation in the longer term.

The Fed has sought to keep ample liquidity in the financial system in a bid to spur lending, but some analysts say it may be difficult to remove that liquidity quickly enough in the future to ward off the risk of an inflationary price spiral.

"Roughly half feel the Fed will start tightening too late, and a similar share think the recently passed financial regulation bill will modestly reduce the risk of another global financial crisis," the survey said.

There seemed to be considerable skepticism among the economists on other matters.

Fully 89 percent thought the recently passed sweeping overhaul of the financial regulatory system would have only modest effect in avoiding another crisis, and only 3 percent said it would significantly cut future risk.

The economists generally opposed letting tax cuts put in place in 2003 by the former Bush administration expire on schedule at year-end and doubted that a group established to find ways to shrink deficits will produce anything of value.

"A resounding 81 percent think the bipartisan National Commission on Fiscal Responsibility and Reform will be unable to produce a credible plan capable of garnering congressional support," the survey found.

The commission is to identify policies that would be effective in shrinking the huge shortfall between the governments income and its spending and to produce a report with recommendations by December 1.

Reporting by Glenn Somerville; Editing by Leslie Adler