The Bank of Japan began a two-day policy meeting Wednesday and its Policy Board members are likely to discuss the possibility of doubling its inflation goal to 2 percent as proposed by incoming prime minister Shinzo Abe.
The central bank will assess economic conditions to decide whether fresh action is needed, but it remains cautious about further monetary easing before a new government is formed following Sunday’s general election, which resulted in a landslide victory by Abe’s Liberal Democratic Party, sources close to the bank said.
The central bank is also watching the development of talks in the United States about avoiding the “fiscal cliff” of anticipated spending cuts and tax increases at the beginning of the next year, as failure to address the issue could lead to the yen’s sharp appreciation against the dollar and jeopardize Japan’s economic recovery, the sources said.
On Tuesday, Abe urged BOJ Governor Masaaki Shirakawa to seek an annual inflation rate of 2 percent for the consumer price index, and said that his incoming government wants to reach a policy accord with the BOJ under which the bank would set an inflation target at that rate and keep pursuing monetary easing until achieving it.
The nine-member Policy Board will discuss these issues with the intention of cooperating with the new government to be formed by Abe, the sources said.
But BOJ policymakers are not expected to make any decisions this time on how to respond to Abe’s requests, and they are likely to finalize their decision possibly next month after Abe launches his Cabinet, they said.