Japan opposition party submits inflation target bill

(For more stories on the Japanese economy, click [ID:nECONJP])

By Tetsushi Kajimoto

TOKYO Nov 19 (Reuters) - A small Japanese opposition party on Friday submitted to parliament a bill requiring the Bank of Japan to set an inflation target with the government, which has a slim chance of becoming law but will keep pressure on the central bank to do more to beat deflation.

The bill by Your Party, which has 16 seats in parliament and has been a strong advocate of revising laws governing the BOJ, chimes with calls from some ruling party lawmakers who want the central bank to set a binding inflation target and commit more to overcoming price declines.

"The (ruling) Democrats and (opposition) New Komeito are discussing a revision to the BOJ Law so we would like them to consider this," Your Party leader Yoshimi Watanabe told reporters after submitting the bill to the upper house of parliament.

The party's bill is unlikely to make its way through the current parliament session running until next month, however. But its views may wield some influence if the ruling Democratic Party, which controls the powerful lower house but does not hold a majority in the upper chamber, wants Your Party's help in passing other bills.

For now, mainstream ruling party lawmakers are hesitant to force the BOJ to adopt a strict inflation target. They welcomed the central bank's monetary easing steps last month and are not calling for radical changes in the BOJ Law.

Still, some analysts say Your Party's views may gain momentum next year if politicians begin to fret about the expected slowdown in Japan's economic growth, which may prompt the BOJ to cut its upbeat economic forecasts.

"It is unrealistic for such a bill to be passed by parliament anytime soon," said Naomi Hasegawa, senior strategist at Mitsubishi UFJ Morgan Stanley Securities. Bills that fail to pass the parliamentary session that ends Dec. 3 will be scrapped.

"But you can't disregard the possibility of mounting political pressures on the central bank again," Hasegawa said.

Under the bill proposed by Your Party, the government would set an inflation target and present it to the BOJ, which would be responsible for achieving it.

The government could dismiss BOJ executives if the bank failed to achieve the price target and could not give a reasonable account of why this had happened, according to the Your Party bill.

That would be a radical change from the current BOJ Law that guarantees central bank independence from the government. The governor cannot be forced to resign by the government under current rules.

POSSIBLE HEADACHE

Your Party may pose a headache for the BOJ next year especially because two of its nine board members will see their terms expire in the first half. Nominees for these posts need the approval from both houses of parliament, leaving room for political influence.

The BOJ last month eased monetary policy by pledging to keep rates effectively pegged at zero until the end of deflation was in sight and announcing a plan to spend 5 trillion yen ($60 billion) on assets ranging from government bonds to corporate debt.

It sets a loose reference of desirable consumer inflation at around 1 percent but has resisted calls for a binding price target, arguing that doing so would deprive its policy of flexibility. (Additional reporting by Leika Kihara; Editing by Joseph Radford)