Purchasing foreign bonds could be one future policy option as long as the central bank made it clear that it is providing liquidity and not trying to manipulate currencies, said Takehiro Sato, one of the new board members.

The BOJ may also need to be more deeply involved in currency policy to help counter the threat that a rising yen poses to Japan's economy, said the BOJ's second new member, Takahide Kiuchi.

Both ideas would be a departure from the BOJ's current policy and are unlikely to represent the views of the majority of the BOJ's 9-member board. Still, this may offer a hint of a shift to a more aggressive policy stance to end persistent consumer price declines.

"It's difficult to imagine that consumer prices are going to accelerate and approach 1 percent gains next year," Sato said.

"I don't think there would be a problem in purchasing foreign bonds as long as we make clear that we are trying to provide liquidity, but there may be some legal hurdles and coordination with overseas officials."

The government on Tuesday formally appointed Sato and Kiuchi to the board, filling seats left vacant since April. Sato was formerly chief economist at Morgan Stanley MUFG Securities, and Kiuchi worked as a chief economist at Nomura Securities.

As prominent economists, both Sato and Kiuchi have frequently urged the BOJ to take more aggressive steps to beat deflation, which has stifled Japan's economy for much of the past two decades.

That has led some market players to believe they may tip the board more in favor of bolder monetary easing steps.

Lawmakers, frustrated by BOJ Governor Masaaki Shirakawa's reluctance to rapidly expand the central bank's balance sheet, rejected the government's first nominee, BNP Paribas chief economist Ryutaro Kono, as not committed enough to monetary stimulus.

Shirakawa, whose term ends next year, has presided over several rounds of monetary easing via the gradual expansion of the central bank's asset buying scheme launched in late 2010.

However, he has also repeatedly warned that pumping more cash into the economy when borrowing rates are already near zero cannot solve all of Japan's problems and pull it out of deflation.

But the renewed rise of the yen, fanned by market jitters over the euro, is again putting pressure on the central bank to help exporters by taming the currency, while Finance Minister Jun Azumi has signaled readiness to intervene.

"Stability in currencies is important," Kiuchi said on Tuesday.

"It's not the task only for the BOJ, but the BOJ may be more involved in stabilizing currencies than before. I think it could be its new policy frontier."

The central bank set a 1 percent inflation target and boosted bond buying in February to convince markets it was serious about pulling the economy out of deflation, which hampers consumer spending and business investment.

It followed up with another increase in its asset buying pool in April, but has held fire since then. Many in the central bank will probably want to save its ammunition again at the next policy meeting on August 8-9, when Sato and Kiuchi will join the BOJ board's deliberations for the first time.

BOJ officials are counting on spending for reconstruction from last year's earthquake and tsunami to support growth, and argue that further easing would only be necessary if risks to the outlook heighten enough to derail the economy's recovery prospects.

Japan's economy is expected to outperform most other developed nations this year thanks to solid domestic demand, but analysts have slashed forecasts for factory output as the slowdown in overseas markets becomes more pronounced.

The two economists, appointed for five-year terms, replace Hidetoshi Kamezaki and Seiji Nakamura, both former business executives whose terms expired in April.

With Kiuchi and Sato on deck, the nine-member board now comprises two economists, two academics and two former business executives, along with Shirakawa and his two deputies.

(Editing by Tomasz Janowski & Kim Coghill)

• A Permanent Economic Emergency