Bowing to government pressure, Japan&S217;s central bank said Tuesday it would pump short-term funds into the country&S217;s banking system in a renewed bid to kick-start lending and breathe life into the moribund economy.

But the Bank of Japan refused to increase its purchases of government bonds and engage in full-blown &S220;quantitative easing,&S221; as called for by government officials. The measured response raised questions about whether the central bank, reluctant to take orders from politicians on monetary policy, was merely maneuvering to get government officials off its back.

Prime Minister Yukio Hatoyama has repeatedly warned that the return of deflation and a surging currency threaten to wipe out the economic recovery Japan has seen in the last two quarters. The yen climbed to a 14-year high against the dollar last week, dealing a blow to Japan&S217;s many exporters, because a strong yen makes Japanese goods more expensive abroad.

Meanwhile, prices and wages have slumped, raising fears of a prolonged and painful bout of deflation that could drag Japan&S217;s economic growth back into negative territory. The country is still reeling from its deepest recession in decades, brought on by the collapse in world trade that came in the wake of the global economic crisis.

At a hastily called emergency meeting on Tuesday, the Bank of Japan&S217;s board voted to provide &<65;10 trillion, or $115 billion, in short-term loans to commercial banks to bolster liquidity. The loans will carry a fixed interest rate of 0.1 percent and the bank said it would accept commercial paper as well as government and corporate bonds as collateral. The bank kept its key short-term interest rate unchanged at 0.1 percent.

&S220;While Japan&S217;s economy is picking up, there is not yet sufficient momentum to support self-sustaining recovery,&S221; the central bank said in a statement. &S220;The bank has judged that, in supporting the economic recovery from the financial side, it is most effective at present to further spread the strong effects of monetary easing.&S221;

While some analysts questioned how much effect the bank&S217;s move would have on the economy, Mr. Hatoyama said he was satisfied, for now.

&S220;I applaud their efforts to show their resolve to stop deflation and spur the economy,&S221; he told reporters.

The Bank of Japan&S217;s move bucks a nascent trend among monetary authorities around the globe to start scaling back emergency measures like rock-bottom interest rates. The central bank&S217;s moves also show how precarious the recovery of the world&S217;s second-largest economy seems to be.

Australia, whose economy has rebounded rapidly this year, on Tuesday raised interest rates by a quarter of a percentage point for a third straight month. And the U.S. Federal Reserve said Monday it would begin testing a strategy to shrink its trillion-dollar portfolio of mortgage-backed securities and eventually wind down its program to prop up financial markets online cash advance.

Still, Dubai&S217;s announcement last week that its investment arm would delay payments for some of its billions of dollars in debt has led to renewed jitters among some global investors.

Concerns over the financial health of the formerly cash-rich emirate have also sparked a flight to currencies that are considered safe havens, including the yen.

The yen, which declined in early trading Thursday on expectations the central bank would take bold policy steps to counteract the currency&S217;s appreciation, crept up to near 14-year highs after the announcement. Earlier, the Nikkei stock index rallied 2.4 percent on hopes that a respite from the strong yen would help exporters&S217; shares.

The Bank of Japan had initially expressed doubts over the need to inject further liquidity into the economy, pointing to stabilizing consumer prices and falling unemployment as signs of recovery.

But as exporters&S217; stock prices tanked recently, demands from government ministers for action by the central bank reached a fever pitch.

With interest rates already near zero, however, the bank has few options.

By providing a new lending facility, the central bank hopes to pump more money into the nation&S217;s banks to encourage them to increase lending to the troubled corporate sector.

The central bank is eager &S220;to show that any policy change is taken with the initiative of the Bank of Japan, not by political pressure,&S221; Masaaki Kanno, economist at JPMorgan Securities Japan, wrote in a note Tuesday.

Demands by officials for more action from the central bank reflect the government's own lack of options. Saddled with a crippling public debt approaching twice the size of its gross domestic product, Japan has limited room for stimulus.

This week, Mr. Hatoyama is set to announce an extra budget that will greatly exceed an initial estimate given by officials of &<65;2.7 trillion. But much of the package will be a mere reshuffling of programs promised by the previous government, and its effect on the economy is likely to be small, analysts say.

Moreover, Mr. Hatoyama, whose Democratic Party won a landslide victory in elections in August, has promised to slash wasteful public spending. While such a move is popular with the public, cutting public works with the economy so fragile could deal a blow to recovery.

The government is therefore leaning increasingly on the central bank.

&S220;We cannot resolve all our economic woes, especially those in our financial system with short-term fiscal spending,&S221; said Naoto Kan, deputy prime minister and state minister for national strategy. &S220;These two pillars must more closely integrate their actions.&S221;

Japan’s Central Bank Takes New Steps to Lift Economy