Under pressure from Abe, Bank of Japan boosts stimulus again

Thu Dec 20, 2012 6:10am EST
 
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan delivered its third shot of monetary stimulus in four months on Thursday, in a prelude to more aggressive action next year as it faces intensifying pressure from the country's next leader for bolder action to beat deflation.

It also signaled setting a higher inflation target at its next meeting in January, when a new government will be in place.

Shinzo Abe, whose opposition Liberal Democratic Party (LDP) won Sunday's election by a landslide, has put the central bank's independence on the line by repeatedly calling for a binding 2 percent inflation target, double its current price goal.

Feeling the heat, the central bank expanded its asset-buying and lending program by 10 trillion yen ($119 billion) to 101 trillion yen, a widely expected move that barely moved markets.

"I take it as that the BOJ is carrying out what we sought during the election step-by-step," Abe told a party meeting.

The incoming prime minister caused a brief stir when he said that BOJ Governor Masaaki Shirakawa had telephoned to inform him of the decision in the morning - when the policy meeting was still taking place. The LDP later said the remark was a slip of the tongue and Shirakawa told a news conference he made the call in the afternoon, after the meeting was over.

With the latest move, the BOJ has expanded asset purchases five times this year, the most frequent activity during a single year in a decade. The last time it eased so many times was in 2001, when Japan was battling a domestic banking crisis.

"The next step is inflation targeting. The BOJ will come up with something that's just enough to avoid criticism from Abe but probably not enough to avoid some sense of disappointment," said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.   Continued...

 
A man walks past the Bank of Japan headquarters in Tokyo December 19, 2012. REUTERS/Yuriko Nakao