The Bank of Japan will tap $6 billion in cash from a government account in a rare arrangement to ensure it has enough ammunition to combat any market disruptions caused by a recent resurgence in coronavirus infections. 

Under the deal, Japan's central bank will buy dollar cash from the Ministry of Finance any time up to the end of March next year at the prevailing market exchange rate at the time. 

It will be the first time the Bank of Japan will buy dollars outright from the MOF, underscoring the bank's caution over the risk of renewed dollar-funding strains heading into the end of the year. 

The move is "in preparation for smoother execution of the Bank of Japan's operations, such as international financial cooperation and foreign currency supply to financial institutions," it said. 

The decision will likely give the Bank of Japan flexibility to address any dollar shortages domestic financial institutions face ahead of the year-end and the March closure of Japan's fiscal year.  

The Ministry of Finance for its part, can use the yen proceeds to pay for the rising cost of servicing Japan's huge public debt diversify its foreign reserves by adding more gold, analysts said. 

It currently holds $1.3 trillion in foreign currencies, deposits and securities, as well as $43 billion worth of gold. 

Japanese financial institutions have repeatedly faced dollar funding strains in times of market stress, though the Bank of Japan's dollar-funding operations have drawn little demand in recent months as markets remain stable. 

The Bank of Japan, along with other major central banks, have dollar swap arrangements with the Fed, which was put in place to deal with the global financial crisis a decade ago. 

"Our response this time was extremely extraordinary under the coronavirus circumstances," a finance ministry official told Reuters.

The Bank of Japan eased policy in March and April mostly by ramping up asset purchases and creating a new facility to funnel funds via financial institutions to cash-strapped firms hit by Covid-19. 

While it has kept policy steady since then, central bank officials have stressed their near-term focus would be to address any funding strains and ensure markets remains stable.