Bank of Japan to mull 2 percent inflation target as Abe turns up heat

Tue Dec 18, 2012 7:33am EST
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Leika Kihara and Stanley White

TOKYO (Reuters) - The Bank of Japan will ease monetary policy this week and consider adopting a 2 percent inflation target no later than in January, sources say, responding to pressure from next Prime Minister Shinzo Abe for stronger efforts to beat deflation.

Turning up the heat, Abe made a rare, direct push for a higher inflation target when BOJ Governor Masaaki Shirakawa visited the headquarters of his Liberal Democratic Party (LDP) on Tuesday.

"I told him that during my election campaign, I called for setting a policy accord with the BOJ and a 2 percent inflation target," Abe told reporters. "The governor just listened," he said when asked how Shirakawa responded.

The LDP swept to power in Sunday's lower house election after campaigning for big fiscal spending to revive the economy and "unlimited" monetary easing to achieve higher inflation in a country mired in deflation for the past 15 years.

A day after the election, Abe called on the BOJ to boost its monetary stimulus at a two-day meeting that ends on Thursday and pressed it to adopt a 2 percent inflation target, double its current price goal, as soon as next month.

Under pressure, the central bank will likely ease policy this week amid looming risks to Japan's economic outlook, sources familiar with its thinking have told Reuters, and may also start debating how to meet Abe's calls to set a higher price target.

Abe will form a new cabinet on December 26 and is seen choosing Taro Aso as finance minister, Japanese media said, a former prime minister expected to toe the party's line calling for aggressive easing and public works splurge.

That means the central bank will be under pressure to respond again at its policy-setting meeting on January 21-22, when it is set to cut its economic forecast for the year ending in March 2013 due to the widening pain from slowing global growth.   Continued...

 
A Japanese flag flutters atop the Bank of Japan building in Tokyo December 13, 2012. REUTERS/Yuriko Nakao