TOKYO (AFX-ASIA) - Bank of Japan governor Masaru Hayami said fiscal policy is an important tool to prevent Japan from falling into a deflation spiral, rejecting the possibility of any immediate introduction of inflation targeting. "In general, fiscal policy has an important role in preventing deflation and stimulating private demand, though it is up to the government to decide on such measures," Hayami said. "While deflation cannot be addressed just with monetary policy, combined monetary and fiscal policy will have a large impact," he said, adding that it is "not appropriate" to introduce immediately inflation targeting. Hideyuki Aizawa, the head of the Liberal Democratic Party's stockmarket support panel, said this afternoon he hopes to submit a revision to the law governing the central bank to force it to implement inflation targeting. Aizawa said he aims to submit the revision during the current parliament. However, Hayami said that rather than relying on monetary policy to make up for restrictions on fiscal spending, new government debt could by financed through sales of existing government assets. "If we try to finance fiscal spending to proceed with structural reforms by increasing bond issues, the future financial burden on the part of citizens will increase," he said. "We can create new revenue if we sell government assets, including quasi-government institutions," Hayami said, noting success elsewhere with similar proposals. "I am frankly not so sure whether we can do the same in Japan but I think it may be a time to consider such options at least," he said. Hayami said the central bank will not hesitate to consider "a new fund provision approach, if goods and services in the private sector were to move forward" as a result of structural reform. However, he added that now is the time for the BoJ to watch closely any economic and monetary developments, rather than immediately examine new policies. "It is far from clear whether the introduction of inflation targeting, even if it can increase liquidity, will contribute to an increase in prices when we are introducing such a policy in a nation that is hit by deflation," he said. "Besides, we have not changed our stance towards resisting the general idea of taking any policy just to increase the inflation rate by ignoring the side-effects that it may yield," he said. The BoJ will do "what a central bank should do if it contributes to drastic progress in the bad debt problem. We will also act as lender of last resort should a contingency situation arise based on our internal criteria," he said. Hayami said he hopes the government quickly legislates to improve the functions of the Resolution and Collection Corp and contributes to progress in disposal of bad loans and rehabilitation of concerned non-financial companies. "We also hope private financial institutions take more aggressive action in disposing of bad loans and improving their earnings base to regain confidence in Japan's financial system," he said. Hayami said the BoJ will "carefully check whether the economy will slip into a deflationary spiral" as the environment surrounding the economy has become more severe after the Sept 11 attacks in the US.