The Bank of Japan has failed to attract enough sell offers from financial institutions for its commercial bill-buying operations in recent weeks.

This failure has threatened to undermine the BOJ's effort to keep the economy from sliding into a deflationary spiral by increasing liquidity. In a major policy shift, the central bank decided on March 19 to bring overnight interest rates effectively back to zero by setting a higher target for commercial banks' reserves in its current accounts.

Its quantitative monetary easing policy has been greeted with a lukewarm response, however, with the market glutted by unwanted money.

Normally, financial institutions sell their securities holdings to raise funds and put the money into short-term assets in order to make profits.

With short-term interest rates remaining at historically low levels, however, they cannot expect quick profit returns on transactions of this kind.

The yen has remained under downward pressure since early this month.

There is speculation that buying of dollar-based assets and other foreign securities have siphoned off much of the excess money supply.

The BOJ appears to be opting to tolerate a further decline in the yen's value -- a move that will help improve the competitiveness of Japanese manufacturers in the export market.

Heizo Takenaka, minister in charge of economic and fiscal policy, supports the BOJ's easy money policy, indicating he is also tolerant of a weak yen.