TOKYO: Japan’s main opposition leader Shinzo Abe said on Wednesday that the Bank of Japan should continue monetary easing until it achieved three percent inflation, signalling the central bank could come under more political pressure after the next general election.
Abe’s Liberal Democratic Party (LDP) leads in opinion polls, which puts the former prime minister in pole position to become the next premier in an election expected within months.
“The Bank of Japan basically needs to continue unlimited easing till 3 percent inflation is achieved,” Abe told a gathering of business executives and academics, stressing that beating deflation and countering the yen’s strength were Japan’s most urgent economic policy issues.
He noted that although 3 percent looked like a good target, further discussion was needed and it would be up to the central bank to decide what measures to take.
Analysts questioned Abe’s prescription for the economy.
“Setting an inflation target is advisable, but a 3 percent price target is too high, and it will be very difficult to achieve by BoJ monetary easing alone,” said Koichi Haji, chief economist at NLI Research Institute. “It would have an adverse effect on the economy.”
Finance Minister Koriki Jojima said he hopes the BoJ continues to play its role to beat deflation, but disagreed with calls from some lawmakers that the central bank should set a higher inflation target than the current 1 percent goal.
“We should be cautious of revising the BoJ law to further strengthen the government’s interference in monetary policy, from the perspective of (protecting) the central bank’s independence,” Jojima told parliament on Wednesday
BoJ Governor Masaaki Shirakawa told the same parliament committee that the central bank is using various tools to pursue “powerful” monetary easing and that it will continue with efforts to beat deflation at an early date.
But he added that the BoJ’s monetary loosening last month wasn’t in response to political pressure and that the central bank won’t necessarily ease policy just because there is a request to do so from the government.
“The BoJ will make its own decision on monetary policy under its own responsibility, while communicating closely with the government,” Shirakawa said.
The BoJ set a one percent inflation target in February and has faced growing pressure from the ruling Democrats for more monetary stimulus to prop up an economy mired in a decade-long deflation and on the brink of another recession.
Latest data showed Japan’s core consumer prices fell for the fifth straight month in September, factory output suffered its biggest fall since last year’s earthquake while the government’s index of leading indicators fell to a level suggesting the onset of a recession.
Some market players speculate that the central bank will ease again this year, possibly in December, to help the struggling economy cope with a strong yen.
The BoJ next meets for a rate review on Nov. 19-20, then on Dec. 19-20.
The central bank has boosted its asset-buying programme four times this year and last week twinned the latest stimulus with an unprecedented joint statement with the government pledging continued efforts to end deflation.
Abe’s comments raised the stakes in politicians’ efforts to commit the central bank to even more aggressive steps.
He said that if his party returned to power he would consider revising a law guaranteeing the BoJ’s independence to allow the government more say in shaping central bank policy.
“Monetary policy has been becoming an increasingly political issue,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. “But it is still uncertain whether what he said will become the LDP’s election pledge at the moment.”
Japan’s Prime Minister Yoshihiko Noda promised in August to call an election for the lower house of parliament “soon” in order to secure opposition votes for key piece of legislation.
While under pressure from the opposition to keep that promise, Noda has been coy on exactly when he will call the election, which must be held by August next year. Japan’s opposition-controlled upper house is also expected to hold an election next summer, which could further strengthen Abe’s hand.