Mon, Jan 14, 2013 - Page 15 News List

Abe says BOJ must set 2% inflation target

INFLATION GOAL:Japan’s new prime minister has been putting pressure on the central bank to beat deflation and weaken the yen, and may choose a new governor from April

Reuters, TOKYO

Japanese Prime Minister Shinzo Abe said the Bank of Japan (BOJ) must set a 2 percent inflation target and make it a medium-term, not long-term, goal to show markets it was determined to pursue bold monetary easing to end nearly two decades of deflation.

The government is negotiating with the bank to issue a joint statement this month to make the central bank accountable for achieving 2 percent inflation, double its current price goal.

“The BOJ basically says it sees 1 percent inflation as a loose goal. That doesn’t show it’s responsible to achieve it and doesn’t show its strong determination,” Abe told public broadcaster NHK yesterday.

“The statement must say clearly that 2 percent is the target. That would lead to fundamental changes” in the way it guides policy, he said.

The central bank set its current 1 percent inflation target in February last year and eased monetary policy five times during the year.

Japan is stuck in its fourth recession since 2000 and its export-reliant economy is suffering from a strong yen.

Abe has piled pressure on the BOJ to beat deflation, threatening to revise a law guaranteeing its independence on monetary policy if his demands are not met.

Under intense pressure, the central bank will consider easing monetary policy at its rate review on Jan. 21 to Jan. 22, and respond to Abe’s calls to double its inflation target, sources said.

In the joint statement likely to be released on Jan. 22, the bank wants to describe the new target as a long-term goal without setting a specific deadline, to leave itself flexibility in guiding future monetary policy.

However, Abe warned that making 2 percent inflation a “long-term goal” was not good enough.

“That’s too long. It should be a medium-term one. Otherwise markets won’t react,” he said.

The Council on Economic and Fiscal Policy, the government’s top economic panel which the BOJ governor attends regularly, could call a meeting to focus on monetary policy and a timeframe, Abe said.

Abe also said he will meet with monetary policy experts tomorrow, including his special economic adviser Koichi Hamada, to seek views on who would be suitable as the next central bank governor.

“Basically, I’d like to choose someone who can implement bold monetary policy and who shares our views,” he said.

Abe’s government has the power to nominate a successor to BOJ Governor Masaaki Shirakawa when his term expires in April, although the nomination needs approval by both houses of parliament. Abe controls the lower house, but not the upper house.

Japan last week approved a US$117 billion stimulus package, the biggest spending boost since the financial crisis. Abe is gambling that a shift to a more expansionary fiscal policy and more monetary easing from the central bank can end years of stop-start growth.

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