Markets immediately took the Bank of Japan's (BoJ) announcement as a sign of a further easing of policy, with the yen dropping against the dollar, but analysts said that whether the expanded operations really amount to an easing will depend on what the BoJ does with its new tools.

In an unusually long meeting, the BoJ policy board's eight members voted by an undisclosed majority to begin outright buying of short-term government securities as a new way of supplying funds to the money market.

"I think the pressure is still on the BoJ, and I suppose somewhere down the track they may be in a position to ease if the yen continues to strengthen or the economy falters," said Matthew Poggi, economist at Lehman Brothers.

"That kind of juncture would provide a more clear chance to change monetary policy." The central bank's statement said it would flexibly use a wide range of money market operations to ensure a further permeation of the effects of monetary easing.

It added that it would pay due consideration to developments in financial markets including the foreign exchange market. Some analysts said the BoJ's vow to be "flexible" in its operations, in addition to its recent policy of supplying "ample" funds, hinted at a further easing of monetary conditions.

In addition to the current repo agreements on treasury bills (TB) and financing bills (FB), the BoJ would introduce outright sales and purchases of those instruments.

And to strengthen the capacity of providing funds to the market, the BoJ said it would add two-year Japanese government bonds (JGBs) to repo operations effective from Wednesday.

"The new operations the BoJ announced were in line with the market expectations," said Koji Fukaya, chief analyst, foreign exchange and treasury division, Bank of Tokyo-Mitsubishi.

"The BoJ has been concerned about lack of effective usage of its current open market operations. This issue should be considered as separate from (how to deal with) the strong yen."

Government and ruling coalition lawmakers, who have urged the bank to boost the money supply aggressively to stave off inflation and curb long-term interest rates and the yen, had toned down their rhetoric in recent days.

Before Wednesday's decision, cabinet ministers avoided comment on the meeting and politicians from the three-party ruling coalition said only that they hoped the bank would act flexibly to accommodate a coming flood of government debt that will finance a promised economic stimulus package.

The BoJ bucked direct domestic and international pressure at its last meeting, in September, stunning the markets by sticking to its policy of driving short-term interest rates essentially to zero through ample supply of funds to the market.

BoJ governor Masaru Hayami will hold a briefing at 7.30 P.M. (1030 GMT). "I imagine that he'll say the same sort of thing he said at the G7. I don't think he'll be explaining any specific details on the BoJ's (money market) operations," said Poggi, referring to a late September meeting of finance chiefs and central bankers from the G7 rich nations.