THE Bank of Japan delivered its third shot of monetary stimulus in four months yesterday, in a prelude to more aggressive action next year as it faces growing pressure from the country's next leader for bolder action to beat deflation.
It also signalled setting a higher inflation target at its next meeting in January, when a new government will be in place. Shinzo Abe, whose opposition Liberal Democratic Party (LDP) won Sunday's election by a landslide, has put the central bank's independence on the line by repeatedly calling for a binding 2pc inflation target, double its current price goal.
The central bank expanded its asset-buying and lending programme by 10 trillion yen (€89bn) to 101 trillion yen, a widely expected move that barely moved markets.
"I take it as that the BOJ is carrying out what we sought during the election step-by-step," Mr Abe told a party meeting.
The incoming prime minister caused a brief stir when he said that BOJ governor Masaaki Shirakawa had telephoned to inform him of the decision in the morning – when the policy meeting was still taking place.
The LDP later said the remark was a slip of the tongue and Shirakawa told a news conference he made the call in the afternoon, after the meeting was over.
With the latest move, the BOJ has expanded asset purchases five times this year, the most frequent activity during a single year in a decade. The last time it eased so many times was in 2001, when Japan was battling a domestic banking crisis.
"The next step is inflation targeting. The BOJ will come up with something that's just enough to avoid criticism from Mr Abe but probably not enough to avoid some sense of disappointment," said Masamichi Adachi, senior economist at JPMorgan in Tokyo.
"Abe is not even prime minister yet. If you look at how the BOJ is behaving, you could argue this is a loss of independence." The BOJ now has a 1pc inflation target, and defines a range of zero to 2pc consumer inflation as a desirable level of long-term price growth.
The central bank said it would review that guideline next month. It will probably clarify that, after 1pc inflation is in sight, it will aim to achieve 2pc inflation.
Mr Shirakawa admitted Abe's request for setting a 2pc inflation target was partly behind its decision to review its long-term price goal. (Reuters)