UPDATE 2-Japan opposition LDP pledges 2 pct inflation accord with BOJ
* LDP would consider private-public fund to buy foreign bonds * Keeps call for aggressive monetary easing, BOJ law revision * Pledges big budget stimulus but mum on exact size * Abe backs down on call for BOJ to underwrite govt debt By Tetsushi Kajimoto and Leika Kihara TOKYO, Nov 21 (Reuters) - Japan's opposition Liberal Democratic Party, tipped to win next month's general election, on Wednesday promised a big extra budget and a policy accord with the central bank on aggressive monetary stimulus to help an economy sliding into recession. The party also promised to boost spending on maritime defence, defend Japan's territory and ease restraints on the military imposed by the pacifist constitution. Those positions could further inflame ties with Beijing, already frayed by a feud over tiny, uninhabited islands now controlled by Tokyo, known as the Senkaku in Japanese and Diaoyu in China. Monetary policy, along with diplomacy and security matters, has emerged as a focal point of the Dec. 16 election - the first since Prime Minister Yoshihiko Noda's Democratic Party of Japan (DPJ) surged to power in 2009. Three years and three prime ministers later, opinion polls show disappointed voters are likely to give the LDP the biggest number of seats in parliament's lower house. "We will take back Japan," LDP leader Shinzo Abe told a news conference announcing the party's platform. "This is our campaign pledge and we only listed things we can achieve," he said, criticising the ruling Democratic Party's failure to meet its pledges during three years in power. The LDP enjoys nearly a 10 percentage point lead over the DPJ in surveys, but is unlikely to win an outright majority as new parties could complicate the outcome. Analysts see the election ushering in a period of confusing coalition politics, partly because of the new parties courting discontented voters. Whoever wins will also lack a majority in the upper house. The LDP's platform calls for setting a 2 percent inflation target, double the current central bank goal. It also seeks to ensure it will pursue it vigorously with a possible revision to to the Bank of Japan law to "strengthen cooperation" with the government on policies to beat deflation. CENTRAL BANK INDEPENDENCE Akira Amari, the LDP's policy chief briefing reporters alongside Abe, said the party would ensure that BOJ independence was preserved, seeking to allay concerns that law changes would expose it to political interference. Abe also said that he did not want the central bank to directly underwrite government debt, which is how markets interpreted his earlier call for the BOJ to buy construction bonds issued to fund infrastructure spending. "What I have been saying all along is that we'd like the BOJ to buy construction bonds from the market, not directly from the government," Abe said. The call for a policy accord is seen as laying the ground for the government to pile more pressure on the central bank to expand stimulus to support the economy, with Japan's huge debt pile leaving it with little room to boost fiscal spending. "We would proceed with a new growth strategy to stimulate the economy, and to correct a prolonged yen rise and deflation. We would also seek monetary easing exceeding the scale of the anti-deflation measures taken when we were in power," Abe said. Abe's calls for aggressive monetary easing have nudged the yen to a seven-month low against the dollar on expectations that the central bank could cave in to pressure from a new government and loosen policy more aggressively. Japan's economy is widely seen as having tipped into recession as slumping exports an the widening pain from the territorial row with China hurt business sentiment. The BOJ set a 1 percent inflation target in February and eased policy four times so far this year to keep the economy afloat and beat the deflation that has plagued the country for more than a decade. But that did not stop politicians from calling for more. The LDP said it would not rely on the central bank alone in stimulating growth, pledging a "large" supplementary budget, though it gave no estimate how much it planned to spend. It also pledged to consider creating a public-private sector fund to buy foreign bonds, among ways to help keep the yen in check and ease the pain on Japan's exporters. The election is expected to usher in Japan's seventh prime minister in six years, with the long-dominant, conservative LDP likely to return to power after a three-year hiatus. Reflecting the party's generally pro-nuclear power stance more than 18 months after the Fukushima nuclear disaster, the LDP said it would finalise decisions within three years about whether to restart idled nuclear power plants. Public fears about safety have grown since the March 2011 earthquake, tsunami and reactor meltdowns at the plant, sparking large demonstrations against restarts. Many economists, however, doubt the election will immediately end a policy stalemate that has plagued a country struggling to cope with an ageing population, a declining manufacturing sector and the emerging power of China.
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