LDP leader Abe: BOJ must ease until inflation hits 3 percent

TOKYO Wed Nov 7, 2012 6:14am GMT

Newly elected Japan's main opposition Liberal Democratic Party (LDP) President Shinzo Abe smiles during a news conference at the LDP headquarters in Tokyo September 26, 2012. REUTERS/Toru Hanai

Newly elected Japan's main opposition Liberal Democratic Party (LDP) President Shinzo Abe smiles during a news conference at the LDP headquarters in Tokyo September 26, 2012.

Credit: Reuters/Toru Hanai

Related Topics

TOKYO (Reuters) - Japan's main opposition leader Shinzo Abe said on Wednesday that the Bank of Japan should continue monetary easing until it achieved 3 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, however, question the practicality of Abe's demands. "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."

The BOJ set a 1 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.

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 "soon" in order to secure opposition votes for key piece of legislation, but he has been coy on exactly when he will call the election for the lower house, which must be held by August next year, with the opposition pressing Noda to keep his promise.

Japan's opposition-controlled upper house is also expected to hold an election next summer, which could further strengthen Abe's hand.

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 start of a recession.

Some market players also speculate that the central bank will ease again this year, possibly in December, to help the struggling economy with a strong yen.

(Reporting by Yuko Yoshikawa, writing by Kaori Kaneko; Editing by Tomasz Janowski and Eric Meijer)

FILED UNDER: