Bank of Japan Gov. Toshihiko Fukui assured on Thursday that the central bank would not bring down its target for liquidity despite the bank’s recent difficulties in pumping excess cash into the financial system.

Mr. Fukui said there was no chance that liquidity in the system would fall below the central bank’s target.

Some financial market participants and analysts had speculated that Mr. Fukui could announce the introduction of a possible reduction in the bank’s liquidity target or a change in the central bank’s policy statement responding to the recent fund-injection difficulties. A reduced need among Japanese banks for cash means a large number of the bank’s fund-injecting operations have been undersubscribed, according to DowJones Newswires.

But Mr. Fukui said that even in case of fund deficits, the central bank will be able to provide enough liquidity to reach the lower end of its account balance target range.

Mr. Fukui said that in keeping the bank’s account balance target in a range of 30 trillion yen to 35 trillion yen, or about $285 billion to $332 billion, the central bank is aiming to provide excess liquidity of around 33 trillion yen.

Speculation about a possible change in the target was aggravated by the release of the minutes from a December policy meeting showing two board members had proposed that the central bank consider reducing its liquidity target given the reduced demand for cash.

The decision to keep policy settings unchanged follows Wednesday’s GDP data that demonstrated that Japan’s real gross domestic product contracted 0.1% in the October-December quarter of 2004, according to the data of Dow Jones Newswires.

Sluggish economic activity doesn’t inspire confidence that Japan will soon be able to combat deflation which, the central bank said, must be achieved before it ends its quantitative easing.

Mr. Fukui said that he predicts continuing small on-year falls in the consumer price index.
Still, the central bank has not changed its outlook for the economy. In its monthly report it held steady its assessment that the economy’s recovery is continuing.

The bank will hold its next policy decision meeting March 15-16.