Reuters: US Dollar Report: UPDATE 2-Japan cabinet plays down making jobs part of BOJ mandate

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UPDATE 2-Japan cabinet plays down making jobs part of BOJ mandate Jan 8th 2013, 05:30 Tue Jan 8, 2013 12:30am EST * Govt keen on 2 pct inflation target for BOJ * PM Abe plans for aggressive monetary and fiscal policy * 10.3 trln yen stimulus spending on the cards-source * BOJ to mull setting 2 pct inflation target, some hesitant By Leika Kihara and Stanley White TOKYO, Jan 8 (Reuters) - Senior members of Japan's cabinet played down the prospect of making the Bank of Japan responsible for stable employment, but said that a 2 percent inflation target will be at the heart of a new policy accord with the central bank. Japan's economics and finance ministers dismissed a report earlier Tuesday in the Mainichi newspaper that stable job growth would be part of a new BOJ mandate as Prime Minister Shinzo Abe pushes for a more aggressive monetary policy. Abe led his Liberal Democratic Party (LDP) to a sweeping election victory last month with pledges to end nearly 15 years of deflation with unlimited monetary easing and big fiscal spending. The government is rushing this month to complete a new policy accord with the BOJ and an economic stimulus package that will be the first test of whether Abe can deliver on his ambitious economic agenda. "The prime minister has been saying for some time now that he wants a price stability goal of around 2 percent inflation," Economics Minister Akira Amari said when asked about the Mainichi report. "Price targeting will be the focus of any policy statement between the government and the BOJ." An accord may not set a deadline or mention specific measures for achieving 2 percent inflation to leave the BOJ with some flexibility in guiding monetary policy, the Mainichi newspaper said, without citing sources. The idea is likely among the several now being floated among central bankers, finance ministry bureaucrats, and politicians keen to show off their determination to drive Japan's economy out of the doldrums. A final decision will be made at the BOJ's next policy rate review on Jan. 21-22, when the central bank will debate setting a higher inflation target than the current 1 percent. Since taking power, Abe and senior LDP politicians have kept up their pressure on the BOJ, but they have backed away from some of their more radical demands partly because the central bank pledged to review its price target in January. Finance Minister Taro said on Tuesday that the government is keen to issue a joint policy statement with the BOJ but cast doubt on using employment as a metric to guide monetary policy. "I don't know if the BOJ would swallow that," Aso said when asked about including employment stability in policy accord. "Where else in the world has employment (as a policy objective)? As far as I know it's only the Federal Reserve. Therefore, doing it with the BOJ at this stage seems to be difficult both physically and time-wise." Aso said on Sunday he won't insist on signing a binding policy accord with the BOJ, as long as there is regular exchange of views with the central bank governor. Adding job growth to the central bank's mandate would be troublesome, because it will require a revision to the current BOJ law, which only mandates it to achieve price stability, and may take time because of opposition from a BOJ wary of political threats to its independence. It will likely consider setting a new 2 percent inflation target this month in response to Abe's calls, although some in the BOJ are hesitant of setting such a goal without clear means to achieve it, particularly in a country that has been mired in deflation for more than a decade. The cabinet will approve a 13.1 trillion yen extra budget on Jan. 15, which will include 10.3 trillion yen for economic stimulus and around 2.6 trillion yen to cover a shortfall in the pension system, sources told Reuters on Tuesday. The stimulus will focus on encouraging research into new technologies, investment in renewable energy, and repairing some ageing roads and bridges. Link this Share this Digg this Email Reprints

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