Tokyo, Jan. 28 (Bloomberg) -- Policies with the sole objective of raising prices are insufficient, Japanese Prime Minister Junichiro Koizumi said, further hinting the government is easing pressure on the central bank to set an inflation target. ``The objective of simply raising prices is not favorable,'' Koizumi told Parliament. ``What's favorable is to stimulate the economy, which will cause wages to rise and lead to stable price increases. We should move forward with our reform to achieve this goal.'' Koizumi's remarks were the latest sign the government is easing pressure on the central bank to set a target for inflation to halt four years of price declines, which have hurt company profits and depressed asset values. The government's apparent easing of pressure on the inflation target issue ``is just a move to salvage the central bank's independence, at least on the surface,'' said Yasuo Goto, a senior economist at Mitsubishi Research Institute. ``The pressure on the bank is probably still there in reality.''
Koizumi is preparing to name a successor to central bank Governor Masaru Hayami, whose five-year term ends March 19. Hayami yesterday repeated that he's against an inflation target, under which money is pumped into the economy until prices rise to a specified level. ``Nothing has changed as banks are still mostly bust,'' said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages $600 million. ``Only inflation can save them, which could happen if the new BOJ governor does something.''
``Deflation Fighter''
Koizumi today commended Hayami by calling him a ``deflation fighter'' and said the central bank governor was well aware of the importance of tackling falling prices. Finance Minister Masajuro Shiokawa yesterday said that an inflation target might hurt the economy, which has been through three recessions in a decade, by pushing up interest rates. Minister of Economic and Fiscal Policy Heizo Takenaka also yesterday said it was ``inappropriate'' to make an inflation target a goal in itself. ``It's good if prices rise by 2 to 3 percent due to a better economy, which also leads to wage increases. But if prices go up without a rise in wages that can result in a completely different consequence,'' Koizumi told Parliament. Central bank policy makers last week decided to refrain from expanding the bank's monthly government bond purchases from 1.2 trillion yen ($10.2 billion). The bank has tripled such purchases in the past two years. In March 2001, it lowered interest rates to almost zero in an attempt to spur growth. //www.quote.bloomberg.com