The government and the Bank of Japan agreed Thursday to launch a task force charged with lifting the economy out of its deflationary state, government officials said.

The accord will be reported today during a meeting of the Council on Economic and Fiscal Policy, which is chaired by Prime Minister Junichiro Koizumi.

Falling prices within the domestic economy have hammered business profitability across the board.

The sources said the government hopes to demonstrate to the public that it is marshaling all of its human and policy resources in an effort to alleviate deflationary pressure on the economy.

The task force, which will comprise working-level bureaucrats from the BOJ, the Finance Ministry and the Cabinet Office, will assemble for the first of a series of meetings perhaps next week.

The Financial Services Agency and the Ministry of Economy, Trade and Industry will dispatch representatives to meetings as needed.

The team will likely draw up specific proposals regarding a second supplementary budget for fiscal 2001, tax system modifications and deregulation, they said.

It will also examine measures to promote the disposal of bad loans by the nation's financial institutions.

Heizo Takenaka, economic and fiscal policy minister, has previously stated that the second auxiliary budget, worth 2.5 trillion yen, is aimed at "preventing the economy from plunging into a deflationary spiral."

A deflationary spiral refers to a state in which a shrinking economy causes prices to fall; falling prices then cause the economy to shrink further.

The new team will not set a numerical target for price increases, a duty over which some ruling coalition legislators believe the BOJ should be responsible, they said.