* BOJ to consider 2 pct inflation target by Jan - sources
* BOJ seen easing via increase in asset buying this week
* Abe seen choosing former premier Aso as finmin - media
* Abe conveys to Shirakawa desire for higher price goal
By Leika Kihara and Stanley White
TOKYO, Dec 18 The Bank of Japan will ease
monetary policy this week and consider adopting a 2 percent
inflation target no later than in January, sources say,
responding to pressure from next Prime Minister Shinzo Abe for
stronger efforts to beat deflation.
Turning up the heat, Abe made a rare, direct push for a
higher inflation target when BOJ Governor Masaaki Shirakawa
visited the headquarters of his Liberal Democratic Party (LDP)
"I told him that during my election campaign, I called for
setting a policy accord with the BOJ and a 2 percent inflation
target," Abe told reporters. "The governor just listened," he
said when asked how Shirakawa responded.
The LDP swept to power in Sunday's lower house election
after campaigning for big fiscal spending to revive the economy
and "unlimited" monetary easing to achieve higher inflation in a
country mired in deflation for the past 15 years.
A day after the election, Abe called on the BOJ to boost its
monetary stimulus at a two-day meeting that ends on Thursday and
pressed it to adopt a 2 percent inflation target, double its
current price goal, as soon as next month.
Under pressure, the central bank will likely ease policy
this week amid looming risks to Japan's economic outlook,
sources familiar with its thinking have told Reuters, and may
also start debating how to meet Abe's calls to set a higher
Abe will form a new cabinet on Dec. 26 and is seen choosing
Taro Aso as finance minister, Japanese media said, a former
prime minister expected to toe the party's line calling for
aggressive easing and public works splurge.
That means the central bank will be under pressure to
respond again at its policy-setting meeting on Jan. 21-22, when
it is set to cut its economic forecast for the year ending in
March 2013 due to the widening pain from slowing global growth.
"Abe's comments have really raised expectations for easing
this week," said Norio Miyagawa, senior economist at Mizuho
Securities Research & Consulting in Tokyo.
"I think the BOJ will deliver with increased purchases of
government debt. Next year could also be a big year for monetary
policy easing, because of the inflation target debate and a
change in leadership at the BOJ."
Fourteen of 19 economists polled by Reuters last week said
they expected the BOJ to ease this week, most likely by
increasing its 91 trillion yen ($1 trillion) asset buying and
lending programme by up to 10 trillion yen.
The BOJ currently has a 1 percent inflation target but has
said this is a goal for the time being, and that it considers a
range of zero to 2 percent as long-term desirable price growth.
The central bank may thus opt to clarify that after the 1
percent inflation is met, it will aim for 2 percent inflation as
a long-term policy goal, to meet demands from Abe for more
aggressive monetary stimulus.
The BOJ and the government may issue a joint statement,
similar to one crafted in October between the central bank and
the outgoing government led by the Democratic Party, pledging to
take measures to aim for 2 percent inflation in the long run,
the sources said.
SEEK CLOSER TIES WITH U.S.
Shirakawa told reporters he did not discuss monetary policy
with Abe, and that he only visited to pay respect. It is rare
for a premier or a would-be prime minister to reveal what was
discussed at a closed-door meeting with a central bank governor.
The BOJ has eased monetary policy four times so far this
year via an increase in its asset-buying and lending programme.
But politicians like Abe have criticised the central bank for
not doing enough to end 15 years of grinding deflation in Japan.
Some central bankers are keen to boost stimulus again, with
the world's third-largest economy already in mild recession and
unlikely to rebound strongly early next year due to weak exports
to China and the potential impact from the U.S. "fiscal cliff."
Any BOJ action on Thursday will likely take the form of a
further increase in its asset-buying programme. But central
bankers, feeling the heat, have been privately pondering options
for next year including setting a higher inflation target and
buying government bonds more aggressively.
Through such steps, they hope to stave off threats by Abe of
revising the BOJ law guaranteeing its independence.
But there is strong resistance within the BOJ on setting a 2
percent inflation target in a country that has barely seen price
growth exceed 1 percent in the past two decades. Japan's core
consumer inflation was flat in October from a year earlier after
five straight months of declines.
BOJ officials close to the conservative Shirakawa are wary
of setting a higher price target without having effective means
of achieving it. They also fret that pumping too much money into
the economy could brew seeds of imbalances, such as sharp rises
in asset prices, in the long-term.
But Abe, whose LDP and its small ally New Komeito captured a
two-thirds majority in Sunday's landslide victory, has swiftly
moved to press his agenda.
On Tuesday, Abe told reporters that he had agreed in a
telephone call with U.S. President Barack Obama that the two
would try to meet next month, part of a push to strengthen ties
with Washington and give Japan a greater global security role.
The choice of Aso, 72, as finance minister suggests Abe is
looking to experienced LDP lawmakers to fill key posts to avoid
criticism that his ministers lack experience.
While Aso's views on monetary policy are little known, as
prime minister he launched massive stimulus packages to combat
the global financial crisis in 2008.
The new finance minister, along with the economics minister,
can attend or send subordinates to BOJ policy-setting meetings.
They cannot vote on policy decisions but can voice opinions and
request a delay in a vote.