Japan's incoming PM calls for central bank easing

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Japan's incoming prime minister Shinzo Abe told the country's chief central banker Tuesday he wanted to set a two percent inflation target, in the opening salvo of his battle to kickstart the economy.

Abe met briefly with Bank of Japan (BoJ) governor Masaaki Shirakawa at his party's headquarters, two days after the Liberal Democratic Party (LDP) scored a landslide victory in national elections.

The hawkish 58-year-old Abe said he called on Shirakawa to strike a policy deal with the government that would drag Japan out of the deflationary spiral that has haunted the world's third-largest economy for years, Jiji news agency reported.

"I told him I want to reach a policy accord with the BoJ for the two percent inflation target that I promoted throughout the election campaign," he was quoted as telling reporters.

Shirakawa -- who had previously slapped down Abe's policy proposals and bristled at any attempt to hijack the BoJ's independence -- rejected suggestions he was summoned to the new premier's office for their meeting.

However, there has been tension between the two men on policy issues, and Abe has been quoted as saying he would like to replace Shirakawa with a more like-minded central bank governor when his term ends next year.

"After the lower house elections I just extended a greeting to him," the BoJ's chief told reporters in Tokyo.

Shirakawa's visit to LDP headquarters came a day before the BoJ starts a two-day meeting, where central bankers are expected to discuss Abe's aggressive easing proposals, possibly ushering in a stepped-up offensive on the economy.

Abe has vowed to pressure the BoJ for more action, calling for "unlimited" easing and said he would make the bank participate in his bond-buying scheme -- effectively printing money to generate inflation.

Japan has been mired in deflation for years, a situation that discourages consumers from spending in the knowledge that products will be cheaper in the future, sapping demand and dissuading firms from investing.

The nation's central bank has launched two major policy easing measures since September after its counterparts in the US and Europe also took steps to fight a slowdown in the global economy.

But critics, notably Abe, have said the bank needed to be more robust.

"The BoJ now faces stronger pressure from the government than before to launch aggressive monetary easing," said Tsuyoshi Ueno, economist at NLI Research Institute in Tokyo.

"The BoJ has no choice but to offer something" to defend its independence, Ueno added.

"But I imagine it would be difficult for Mr. Shirakawa and the bank to accept the two-percent inflation target, after he rejected Mr. Abe's view so sharply."

Central bank independence was a key feature of developed economies, Shirakawa said last month in an rebuke over Abe's politically-charged comments that he would review a law concerning the BoJ's mandate.

"We need an organisation that looks at the economy and finance with a long-term view," he said, adding that Abe's policy plans are "not implemented in any developed countries".

Confidence among Japanese manufacturers hit a near three-year low in the final months of 2012, according to a BoJ survey released last week.

It came just days after official data showed the economy contracted in the July-September quarter and may have slipped into recession.