Shareholders are fearful of a money crisis

The Bank of Japan (BOJ) has raised its target for extra cash in the financial system by 3 trillion yen ($26bn), allowing extra money to flood the money markets.

The move reassured stock markets which have been fearful of a funding crunch since the government's recent decision to pump public funds into the nation's fifth largest bank to avert a financial crisis.

"The BOJ tried to show its determination to take decisive action to avert a crisis in the money market," said Seiji Shiraishi, chief market economist at Daiwa Securities SMBC.

"But this will not have any impact on the real economy," he cautioned.

At a standstill

The Japanese economy struggled to make headway in the first three months of the year and economists are predicting more gloom ahead.

The central bank also warned about the impact of the Sars virus that is likely to further damage the region's economic growth.

The world's second largest economy reported flat Gross Domestic Product (GDP) to March 2003 and has been teetering towards reverse since then.

Exports, which account for 11% of Japan's GDP, took the biggest hit in the first three months of the year.

And analysts warn that Sars is likely to hit exports again in the current three month period to June.