[h=3]By TAKASHI NAKAMICHI[/h]TOKYO—Incoming Japanese premier Shinzo Abe pledged on Monday to step up communication with the Bank of Japan by reviving a once-powerful policy-setting body headed by the prime minister, stirring speculation that he may use it to pressure the bank to double its 1% inflation goal.
Mr. Abe said he wanted to resume meetings of the Council on Economic and Fiscal Policy, known for playing a central role in formulating economic policy under former Prime Minister Junichiro Koizumi, but which has lain dormant since the Liberal Democratic Party was ousted from power three years ago.
"The council will be the control tower for macroeconomic policy," Mr. Abe told a news conference a day after the LDP scored a landslide victory in Sunday's general election. "There, we can have a dialogue with the central bank." Mr. Abe pointed out that in the past the council met frequently, sometimes even once a week.
Analysts say the comments are an indication of Mr. Abe's eagerness to immediately start acting on his campaign promises to reinvigorate Japan's economy, including a call on the BOJ to adopt a 2% inflation target and further loosen monetary policy to achieve that end.
"The council is a means by which Mr. Abe can most quickly act to realize the steps he has promised during the campaign," said Yoichi Takahashi, a university professor seen as an economic adviser to Mr. Abe.
Headed by the prime minister, the council used to help shape some landmark decisions, such as the privatizing of Japan's mammoth postal services. It also offered an opportunity for cabinet ministers to discuss monetary policy with the central bank as the law on which the council is founded gives the prime minister the power to compel the BOJ governor to attend meetings.
Mr. Abe, who previously attended the council's meetings, first as a senior government official and later as prime minister, will likely ask BOJ Gov. Masaaki Shirakawa to introduce a 2% price target once the council resumes its session, said Prof. Takahashi, who as a government official was deeply involved in the council back when the LDP was in power.
While talks about monetary policy at the council during the last decade seemed to have little effect on the BOJ, which went ahead to tighten policy in 2006-2007 despite government qualms, Prof. Takahashi said the BOJ governor would likely agree to Mr. Abe's demands.
"I don't think (Mr. Shirakawa) will resist that," Prof. Takahashi said, given the strong mandate handed to Mr. Abe—and presumably his economic policy—by Japanese voters.
Any resistance by Mr. Shirakawa could take the battle between lawmakers and the central bank over monetary policy to a new level. Prof. Takahashi said it could lead to Mr. Abe considering revising the law that guarantees the central bank's independence.
Arguing that monetary policy alone can't fix deflation, Mr. Shirakawa has voiced wariness to upgrade the bank's 1% "goal" to a more rigid 2% "target."
However, Etsuro Honda, a former Finance Ministry official who is also considered to be an adviser to Mr. Abe, said the council may focus more on budget-making and growth strategies and is unlikely to discuss BOJ policy in detail.
Mr. Abe is likely to propose to the BOJ in separate settings that it enter an accord with the government to bring about a 2% inflation target, Mr. Honda said. Should the BOJ governor balk at such a suggestion, Mr. Abe would solve the issue by installing a pro-accord person atop the bank in April, when Mr. Shirakawa's term expires, and then rewrite the BOJ law to give the accord teeth, Mr. Honda said.
Mr. Abe said he wanted to resume meetings of the Council on Economic and Fiscal Policy, known for playing a central role in formulating economic policy under former Prime Minister Junichiro Koizumi, but which has lain dormant since the Liberal Democratic Party was ousted from power three years ago.
"The council will be the control tower for macroeconomic policy," Mr. Abe told a news conference a day after the LDP scored a landslide victory in Sunday's general election. "There, we can have a dialogue with the central bank." Mr. Abe pointed out that in the past the council met frequently, sometimes even once a week.
Analysts say the comments are an indication of Mr. Abe's eagerness to immediately start acting on his campaign promises to reinvigorate Japan's economy, including a call on the BOJ to adopt a 2% inflation target and further loosen monetary policy to achieve that end.
"The council is a means by which Mr. Abe can most quickly act to realize the steps he has promised during the campaign," said Yoichi Takahashi, a university professor seen as an economic adviser to Mr. Abe.
Headed by the prime minister, the council used to help shape some landmark decisions, such as the privatizing of Japan's mammoth postal services. It also offered an opportunity for cabinet ministers to discuss monetary policy with the central bank as the law on which the council is founded gives the prime minister the power to compel the BOJ governor to attend meetings.
Mr. Abe, who previously attended the council's meetings, first as a senior government official and later as prime minister, will likely ask BOJ Gov. Masaaki Shirakawa to introduce a 2% price target once the council resumes its session, said Prof. Takahashi, who as a government official was deeply involved in the council back when the LDP was in power.
While talks about monetary policy at the council during the last decade seemed to have little effect on the BOJ, which went ahead to tighten policy in 2006-2007 despite government qualms, Prof. Takahashi said the BOJ governor would likely agree to Mr. Abe's demands.
"I don't think (Mr. Shirakawa) will resist that," Prof. Takahashi said, given the strong mandate handed to Mr. Abe—and presumably his economic policy—by Japanese voters.
Any resistance by Mr. Shirakawa could take the battle between lawmakers and the central bank over monetary policy to a new level. Prof. Takahashi said it could lead to Mr. Abe considering revising the law that guarantees the central bank's independence.
Arguing that monetary policy alone can't fix deflation, Mr. Shirakawa has voiced wariness to upgrade the bank's 1% "goal" to a more rigid 2% "target."
However, Etsuro Honda, a former Finance Ministry official who is also considered to be an adviser to Mr. Abe, said the council may focus more on budget-making and growth strategies and is unlikely to discuss BOJ policy in detail.
Mr. Abe is likely to propose to the BOJ in separate settings that it enter an accord with the government to bring about a 2% inflation target, Mr. Honda said. Should the BOJ governor balk at such a suggestion, Mr. Abe would solve the issue by installing a pro-accord person atop the bank in April, when Mr. Shirakawa's term expires, and then rewrite the BOJ law to give the accord teeth, Mr. Honda said.