BOJ rift surfaces over easing as political debate heats up

Mon Nov 26, 2012 4:02am EST
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By Stanley White and Leika Kihara

TOKYO/NAGOYA, Japan (Reuters) - A split within the Bank of Japan was laid bare on Monday, with newcomers to its board pressing to strengthen commitment to an ultra-loose policy, as pressure on the central bank for bolder action intensified in the run up to next month's election.

In an effort to shift the debate away from the central bank, BOJ Governor Masaaki Shirakawa repeated his view that monetary easing alone cannot beat deflation, urging the government to pursue fiscal reform and deregulation to boost domestic investment.

But minutes of the October 30 meeting of the nine-member board released on Monday showed Takehiro Sato, one the newcomers, had suggested a more activist stance on monetary expansion once Shirakawa's term ends in April.

The conduct of policy became one of the most heated areas of political debate ahead of the December 16 election after Shinzo Abe, the leader of the opposition Liberal Democratic Party (LDP) and likely next prime minister, called for the central bank to adopt negative interest rates and other radical measures.

Abe also threatened to take away the BOJ's independence to allow the government to call the shots on targets and the means to achieve them.

Sato, a former economist who has consistently called for more BOJ measures to keep yen rises in check, proposed linking monetary policy more closely to a rise in consumer prices and suggested giving up the BOJ's view that consumer inflation will approach 1 percent in the fiscal year ending in March 2015.

The minutes of the meeting showed Takahide Kiuchi, another former economist who joined the board with Sato in July, was alone in his support for the proposal, showing that their views lacked broad support at least for now.

"A few members raised the issue of whether it was possible to further exert influence on interest rates and demonstrate the BOJ's clearer stance on monetary easing by changing the current wording," the minutes showed.   Continued...

Japan Restoration Party (JRP) leader Shintaro Ishihara (C) arrives at a group interview in Tokyo November 26, 2012. Japan's opposition Liberal Democratic Party (LDP) is holding its lead ahead of December 16 election, opinion polls showed on Monday, with the hawkish JRP led by a nationalist former Tokyo governor coming second. Ishihara, the outspoken former Tokyo governor who sparked a territorial row with China with plans to buy a group of disputed islands, was seen as a more suitable government leader than Prime Minister Yoshihiko Noda, according to Yomiuri daily's survey. REUTERS/Issei Kato