/www.bloomberg.com/ By Kanako Chiba and Daisuke Takato
Tokyo, Jan. 6 (Bloomberg) -- Japan's next central bank chief needs to be a deflation fighter and work with the government to stem four years of falling prices, Prime Minister Junichiro Koizumi said.
``We need the next central bank head to be aggressive in tackling deflation, and he has to be somebody who can listen to other people to take appropriate measures,'' Koizumi said at his first press conference this year.
``The government and BOJ will work together to tackle deflation, taking all available measures,'' he said.
The replacement for Bank of Japan Governor Masaru Hayami, who steps down on March 19, also needs to be dedicated to working with the government to tackle banks' bad-loan problems, he said.
The new central bank governor ``is likely to be more accommodating of the government than Hayami has been,'' said Peter Clay, currency strategist at ABN Amro Holding NV in Sydney. ``This will probably mean a more aggressive BOJ'' in tackling deflation, he said.
Falling prices have squeezed profits and made it harder for companies to pay debt. Japan's banks had 52.4 trillion yen ($438.9 billion) of bad loans as of nine months ago, according to government estimates. Japanese consumer prices, excluding fresh food, haven't risen annually since April 1998. In December, Tokyo core prices fell 0.7 percent from a year ago.
The government is preparing to nominate the new central bank governor. In practice, the decision will be made by Koizumi, whose party leads the coalition government. The nomination will probably come before Jan. 20, when the new session of parliament starts, analysts said. Both houses must approve the nominee.
Inflation Target
Taku Yamasaki, the ruling Liberal Democratic Party's secretary-general, said yesterday that the next central bank chief needs to set a target to raise consumer prices.
``What we are facing now is an emergency situation,'' Yamasaki said in an interview with Bloomberg News. ``We need someone with a strong personality even if it's a little overbearing.''
Toshihiko Fukui, a frontrunner and former central bank deputy chief, may be too concerned about keeping the independence won by the central bank in 1998, Yamasaki said.
Fukui, who worked at the central bank for 40 years and now heads the Fujitsu Research Institute, told Bloomberg News last month he opposes government interference with central bank policies, including pressure to set a target for boosting prices.
``It's not yet the right time to announce details of the new central bank chief,'' Koizumi said at today's press conference.
During Hayami's five-year term, top banking regulator Heizo Takenaka and other government officials pressured the central bank to adopt an inflation target -- setting a goal for prices to rise, and pumping money into the banking system until it's met.
Party Election
Koizumi also said he has no plans to dissolve parliament and call elections this year.
``I am not planning at all to dissolve'' the lower house, Koizumi said. The LDP party election, which will decide on Koizumi's leadership of the party, ``will happen in September as planned, and I am not planning to time any parliament break-up at the time of party election.''
Japan's lower house must be dissolved before June 2004, when its four-year term ends. Yamasaki said yesterday the next lower house election ``will probably be held between July and December.''