By Leika Kihara

NAGOYA, Japan (Reuters) - The governor of the Bank of Japan said the bank will act decisively in the event of renewed financial market turmoil, his strongest hint yet at fresh support for the economy that analysts say could involve buying more government bonds or a return to quantitative easing.

A government spokesman said quantitative easing will indeed be part of the talks when BOJ Governor Masaaki Shirakawa and Prime Minister Yukio Hatoyama meet this week, as the government leans on the central bank to act against deflation.

"We absolutely don't have any plan to prepare for exiting our easy policy," Shirakawa told business leaders in Nagoya, central Japan.

"We had some developments in financial markets last week. If we experience financial market turmoil again, the BOJ will act aggressively and decisively," he said.

Despite mounting pressure from the new government, which is worried about the risk of another recession, the BOJ has said there is little it can do beyond keeping interest rates at the current 0.1 percent to push up prices.

But analysts say the BOJ will eventually be pressed to increase its government bond buying or revert to a quantitative easing policy of flooding markets with extra cash.

"It is likely the BOJ will do more. The most important measure is the BOJ's purchase of government bonds," said Simon Wong, a regional economist at Standard Chartered in Hong Kong.

"The current path paves the way for the BOJ to further ease in terms of buying of JGBs, and the current inflation environment creates a perfect backdrop to expand monetary policy."

Shirakawa gave few clues on whether an increase in bond buying was an option, saying only that the bank will take the most appropriate decision based on economic developments at the time. The BOJ now buys 21.6 trillion yen ($250 billion) in long-term government bonds from the market each year.

The government has declared Japan to be in deflation and has criticized as too optimistic the BOJ's view that annual consumer price falls will gradually ease and that another recession is unlikely.

Hatoyama said the government needed to act decisively against deflation and the yen's surge, which hurts Japanese exporters by making their goods less competitive overseas.

"We recognize that we need decisive steps to deal with recent economic conditions such as the yen's rise and mild deflation... We will compile economic measures soon," he told parliament.

In a bid to fend off speculation the two were at odds over economic policy, Shirakawa said the BOJ shared the government's view that the country was in mild deflation in the sense that price falls are likely to persist.