UPDATE 1-Japan's Abe softens tone but keeps pressure on BOJ
* BOJ buying foreign bonds could be option - Abe
* Adds BOJ can also seek ways to boost stock market
* PM Noda says having BOJ finance public debt wrong
By Leika Kihara
TOKYO, Nov 30 (Reuters) - Japan's opposition leader Shinzo Abe said on Friday he would leave it to the Bank of Japan to decide on how to achieve its policy objectives, softening his earlier demands specifying what steps it should take to beat deflation.
But he repeated his calls for the central bank to set a 2 percent inflation target, double its current goal, and find unorthodox ways to stimulate the economy, suggesting that buying foreign bonds could be among future options.
"If I become prime minister, I won't comment on specific monetary policy measures, as they should be decided by the BOJ," Abe said in a joint party leaders' debate.
"One way could be (for the BOJ) to buy foreign bonds or try to directly affect the stock market (through policy measures) such as the U.S. Federal Reserve is doing," he said. Abe did not say which among the Fed's measures he was referring to.
With interest rates virtually at zero, the BOJ has had in place since 2010 an asset-buying programme as its key monetary easing tool, under which it buys Japanese government bonds and private debt, but not foreign bonds.
Some lawmakers want the BOJ to buy foreign bonds to keep yen rises in check, but the central bank argues that it cannot do so because that would be tantamount to currency intervention, which falls under the jurisdiction of the finance ministry.
Abe is seen as the front runner to become prime minister in an election for parliament's lower house on Dec. 16, which polls suggest his Liberal Democratic Party (LDP) will win.
He has called for more aggressive easing to revive the economy including through extreme steps such as seeking negative interest rates, or setting a 2 percent inflation target and pursue "unlimited" policy loosening to achieve it.
But Abe has recently toned down his demands after they were criticised by BOJ policymakers and lawmakers of other parties as unrealistic.
Prime Minister Yoshihiko Noda, head of the ruling Democratic Party, told the same debate that he sees 1 percent inflation as an appropriate, realistic target given Japan has rarely seen consumer inflation rise above that level in the past decade.
Noda also criticised a proposal by Abe that the central bank should buy from the market government bonds issued to finance spending for public works, to help stimulate an economy widely seen as already in recession.
"Having the BOJ finance public debt is inappropriate. I wouldn't adopt such a policy," Noda said.
The BOJ set a 1 percent inflation target in February and loosened monetary policy four times so far this year, including in September and October, to ease the pain on the economy from weakening global demand.
Trending On Reuters
We are living longer but not creating financial plans to keep pace. Advisers give tips on how to make sure you don’t outlive your money. Video