UPDATE 1-BOJ should show resolve for "unlimited" easing - LDP official

Wed Dec 19, 2012 10:20pm EST

* LDP not asking BOJ to buy bonds recklessly - Hosoda

* Adds there are limits to how much govt can spend

* Key is to encourage companies to boost investment

By Kaori Kaneko

TOKYO, Dec 20 (Reuters) - The Bank of Japan has already shown its readiness to keep an ultra loose monetary policy but stressing its resolve to ease "unlimitedly" would make a difference, a senior Liberal Democratic Party (LDP) official said on Thursday.

"What's important is to encourage private investment through easy monetary policy," said Hiroyuki Hosoda, chairman of the LDP's general council told Reuters.

However, Hosoda added that the LDP is not implying that the central bank should buy government bonds recklessly or intentionally create unwelcome inflation by setting a price target.

The BOJ meets for the second day of its policy-setting meeting on Thursday, when it is expected to ease monetary policy further via an increase in asset purchases.

There are limits to how much the government can spend to revive the economy, Hosoda said, adding that any increase in public works spending - together with BOJ monetary easing - would be aimed more at improving business sentiment and encouraging companies to increase investment.

Shinzo Abe, head of the opposition LDP which won in a landslide in Sunday's election, has put the central bank's independence on the line by repeatedly calling for a binding 2 percent inflation target, double the BOJ's current price goal, and for buying more bonds aggressively.

Hosoda said Abe, the incoming prime minister, is expected to focus on security and defense when he meets U.S. President Barack Obama in January, rather than on whether Japan would join the Trans-Pacific Partnership free trade deal.

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