TOKYO - The Japanese government is considering a policy accord with the new head of the Bank of Japan (BOJ) with an eye to setting an inflation target, a Japanese newspaper reported on Sunday. The current governor, Masaru Hayami, has said that adopting an inflation target could be a "reckless gamble" for Japan under current conditions, but his term ends in March next year. The Yomiuri Shimbun daily said that according to government sources, Prime Minister Junichiro Koizumi has begun studying the idea of concluding a policy agreement between the government and the new BOJ governor. This accord would then be used to urge the BOJ to further ease its monetary policy with an eye to setting an inflation target, the sources were quoted as saying. Officials at the BOJ could not immediately be reached for comment.
The accord, which the sources said was proposed by Economic Minister Heizo Takenaka, would allow the government and BOJ to discuss policy targets but would leave planning of concrete measures to the bank, the Yomiuri reported. Although he has presided over one of the biggest monetary easings in recent history, Hayami has angered politicians in the ruling Liberal Democratic Party by resisting calls for more radical steps, saying it could hurt the economy and the independent bank's credibility. According to minutes of a December 13 meeting of the government's top economic panel, Hayami said that adopting an inflation target could be a "reckless gamble" for Japan under current conditions. "Inflation targeting would be a reckless gamble for the government and the Bank of Japan, and could end (with) both parties losing credibility," the minutes quoted Hayami as saying. The race to replace Hayami is still wide open, but Koizumi last week said he would prefer somebody from the private sector. He has also repeatedly said he wants the new governor to be someone who will "actively fight deflation," which some analysts interpret as meaning someone willing to try out the idea of an inflation target.
Nobuyuki Nakahara, a former head of oil refiner Tonen Corp who fought for aggressive monetary easing during a stint on the BOJ's board from April 1998 to April 2002, is thought by many to be emerging as a front runner to replace Hayami. //www.asia..com