Japanese premier-elect puts inflation shot across Bank of Japan’s bow

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JAPAN’S next premier, Shinzo Abe, yesterday renewed pressure on the central bank to adopt a 2 per cent inflation target, saying that he will try to revise a law guaranteeing its independence if his demand is not met.

He also said he will pick someone who agrees with his views on the need for bolder monetary easing to succeed Bank of Japan (BoJ) governor Masaaki Shirakawa when his term expires in April.“At this month’s policy meeting, the BoJ said it would examine [setting an inflation target] at its next meeting,” Abe said.

“If it doesn’t, we’ll revise the BoJ law and set up a policyaccord with the central bank to agree on an inflation target. We may also seek to have the BoJ held accountable for job growth.”

The comments are the strongest warning to date on the possibility of revising the law guaranteeing the BoJ’s independence from political interference. It is rare for a prime minister or a would-be premier to make explicit demands on what the BoJ should do at its policy-setting meetings.

Abe, who will become prime minister on Wednesday after his opposition Liberal Democratic Party (LDP) won this month’s lower house election, has put the BoJ at the centre of political debate, urging bolder monetary stimulus to beat deflation.

He wants the BoJ to share with the government a binding 2 per cent inflation target, double the central bank’s current goal, and ease policy “unlimitedly” to achieve it. There is no specific time frame.

Under pressure, the central bank loosened policy on Thursday for the third time in four months by boosting asset purchases. It also said it would consider setting a higher inflation target at its next policy-setting meeting on 21-22 January.