Capitalizing on his sweeping electoral victory over the
weekend, Japans next prime minister, Shinzo Abe, stepped
up pressure Monday on the Bank of Japan to ease monetary policy
dramatically in an effort to end deflation and jump-start the
Abes center-right Liberal Democratic Party scored
an overwhelming victory in Sundays parliamentary election
after a highly unusual campaign in which he focused his attacks
more on the central bank than on the outgoing government of
Prime Minister Yoshihiko Noda. NHK public TV said Monday the
LDP had won 294 seats in the 480-member lower house of
parliament while its ally, the New Komeito party, won 31 seats,
giving them the two-thirds majority needed to overrule most
matters in the upper house, where Nodas Democratic Party
of Japan holds the largest number of seats.
During the campaign, Abe had declared that the top priority
of an LDP government would be to bring an end to the deflation
that has plagued Japans economy for 15 years. To that
end, he called on the Bank of Japan to double its inflation
target, to 2 percent, and to ease aggressively along the lines
of the U.S. Federal Reserve Board to reach that goal. He also
identified the strong yen as an archenemy of business and vowed
to press for measures, including purchases of foreign bonds by
the BoJ, to weaken it. Abe even threatened to override the
central banks independence if it didnt bow to the
will of the government.
Abe kept up the pressure at a post-election news conference
on Monday. It was very rare for monetary policy to be the
focus of attention in an election, but there was strong public
support to our view, he said. I hope the Bank of
Japan takes this into account when its policymaking body
meets this Wednesday, he added.
Financial markets reacted to the LDP victory by pushing the
yen lower, to 83.78 to the dollar from 83.45 on Friday, and
driving up Japanese stock prices. The Tokyo Stock
Exchanges Nikkei 225 index rose 91.32 points, or just
under 1 percent, to 9,828.88.
Japans central bank has long drawn criticism from
outside economists for its seeming passivity. The banks
determined effort to rein in asset prices in the late 1980s
effectively burst the countrys property bubble and set in
train a lengthy period of stagnation the so-called lost
decades that have produced a stubborn deflation. The BoJ
was slow to adjust to the changed circumstances. It didnt
adopt an inflation target until February 2012 and then set it
at a mere 1 percent, the lowest of any major central bank.
Although the BoJ has bought bonds over the past decade, it has
resisted the bold intervention style and explicit economic
targets adopted by the Fed.