UPDATE 4-BOJ eases monetary policy, supports FX intervention
* BOJ tops up asset buying, fixed-rate market operation
* Decision came after speeded-up rate review
* Yen rise, global slowdown hurting sentiment - Shirakawa
* Shirakawa: BOJ, govt communicate closely, share economy view (Adds Shirakawa quotes)
By Leika Kihara
TOKYO, Aug 4 (Reuters) - The Bank of Japan eased monetary policy by boosting asset purchases on Thursday at a rate review that was cut short by a day, signalling its determination to support Tokyo's solo currency intervention to weaken the yen.
The decision was widely expected as the central bank had signalled that any easing of credit would take the form of an increase in the 10 trillion yen ($130 billion) asset buying programme. By a unanimous vote, the BOJ added another 5 trillion yen to the pool of funds established last year.
The government welcomed the move and BOJ Governor Masaaki Shirakawa said the central bank was in close touch with the government, suggesting that the two sides will continue to work together to address the yen's strength.
"Japan faces various challenges such as power constraints. When the yen rises in such circumstances it can hurt business sentiment and prompt companies to shift production overseas," Shirakawa told a news conference.
On whether the BOJ was ready to further boost asset purchases, Shirakawa said: "The economy is a living thing. We central bankers tend to say, 'Never say never'."
Japan intervened in the currency market on Thursday to curb rises in the yen that officials fear threatened to derail the export-reliant economy's recovery from a slump triggered by a devastating earthquake in March.
Sources familiar with the central bank's thinking had told Reuters the BOJ would ease policy if Tokyo stepped into the market, to maximise the effect of weakening the yen.
The decision to buy more assets, including exchange-traded funds (ETFs) and real-estate investment trusts (REITs), gave a modest boost to the Nikkei share average . But the effect on the yen and bond yields was muted, casting doubt on how effectively it could help to keep the yen in check.
"The central bank seems to be working in sync with the MOF, and that is different from past times when they eased policy. It's a message that they are willing to act to stop the yen from appreciating further," said Koichi Ono, a senior strategist at Daiwa Securities Capital Markets in Tokyo.
"It still remains to be seen whether the easing will actually temper the yen's strength. The market focus has already shifted to what the BOJ may have to do if yen strength persists."
The BOJ's action follows a surprise interest rate cut by Switzerland's central bank to ease buying pressure on the Swiss franc, which like the yen had been attracting funds shifted out of the dollar on concerns about the health of the U.S. economy.
The BOJ set up the asset programme last year to buy items ranging from government bonds to corporate debt, and doubled it just days after the March quake.
On Thursday, it also topped up by programme offering funds via market operations at 0.1 percent by a similar amount to 35 trillion yen.
As a result, the size of its funds for asset buying and market operations backed by collateral swelled to 50 trillion yen, which the BOJ hopes to plough into asset purchases by the end of next year.
As widely expected, the BOJ maintained its benchmark policy rate at a range of zero to 0.1 percent.
BOJ officials had become increasingly worried that the yen's surge of nearly 5 percent against the dollar over the past month might prevent the economy from exiting recession in autumn, when it shakes off quake-related supply constraints.
Shirakawa said that while the BOJ was sticking to its view that Japan will resume a moderate recovery later this year, heightening risks to that scenario warranted easing policy now.
The possibility of more monetary stimulus increased after Prime Minister Naoto Kan made a rare call on Wednesday for the BOJ to support the economy, and a slump in Tokyo share prices raised concern that the pain from the yen rise was intensifying.
The decision to ease on the same day as intervention, even if it meant cutting short its two-day rate review, indicated that the BOJ wanted to avoid a repeat of last summer, when it was criticised for responding too slowly to a yen spike driven by expectations of massive U.S. monetary easing.
At that time, it eased policy at an emergency meeting last August only after explicit pressure from the government.
"We are always closely communicating with the finance ministry," Shirakawa said. "As for current economic conditions, we basically share the same view." ($1 = 76.890 Japanese Yen) (Additional reporting by Rie Ishiguro, Kaori Kaneko and Stanley White; Editing by Yoko Nishikawa)
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