Abe keeps up pressure on BOJ to attack deflation

Ruling LDP agrees on two per cent inflation target with ally

Incoming Japanese Prime Minister Shinzo Abe kept up his calls on Tuesday for the Bank of Japan (BOJ) to drastically ease monetary policy by setting an inflation target of two per cent, and repeated that he wants to tame the strong yen to help revive the economy.

Abe, a security hardliner who will be sworn in as premier on Wednesday, when he is also expected to appoint his cabinet, is prescribing a mix of aggressive monetary policy easing and big fiscal spending to beat deflation and rein in the strong yen.

“The economy, diplomacy, education and rebuilding in the northeast (hit by the 2011 tsunami, quake and nuclear disaster) are in a critical situation. I want to create a cabinet which can overcome this crisis,” Abe told a news conference.

 

“We have advocated beating deflation, correcting the strong yen and achieving economic growth during the election, so we must restore a strong economy,” he said, adding that the stagnant economy was also undermining Japan's diplomatic clout.

Abe — who quit abruptly as prime minister in 2007 after a troubled year in office — repeated that his new government hopes to sign an accord with the BOJ to aim for two per cent inflation, double the central bank's current target.

“Once I become prime minister, I will leave it up to the BOJ to decide on specific measures on monetary policy,” Abe told a meeting with officials from major business lobby, Keidanren.

“I hope the BOJ pursues unconventional measures, including bold monetary easing,” he added, maintaining pressure on the central bank to expand monetary stimulus more forcefully in order to tackle the deflation that has dogged Japan for more than a decade.

Earlier on Tuesday, Abe agreed with his coalition ally Natsuo Yamaguchi of the New Komeito Party on a policy package that includes “bold monetary easing” to reach an inflation target of two per cent.

The accord announced in a statement in Tokyo bolsters the position of Abe’s Liberal Democratic Party (LDP) in the lower house, where it won a landslide victory in this month’s election. With New Komeito backing a cornerstone of Abe’s economic platform, the LDP is also in a better position to campaign for July elections in the upper chamber, where the party lacks a majority.

“Abe will focus even more on economic policies,” said Tokyo-based independent political analyst Harumi Arima. “If voters get the sense that the economy is improving, he is likely to win in the upper house and he will have a more stable administration.”

Abe is scheduled to name a cabinet tomorrow after the lower house names him as prime minister.

New Komeito had cautioned during the election campaign that forcing the BOJ to reach a two per cent inflation target risked undermining its independence.