* BOJ to consider options beyond more asset buying-sources
* No consensus yet on whether to try new steps next week
* Shirakawa, ministers discuss joint statement
* Statement to mention 2 pct inflation goal - deputy econmin
* Most of statement agreed, some open questions remain
By Leika Kihara and Tetsushi Kajimoto
TOKYO, Jan 18 The Bank of Japan will consider
making an open-ended commitment next week to buy government
bonds and other assets until 2 percent inflation is in sight and
the economy is on a more solid footing, according to sources
familiar with its thinking.
The central bank will also consider scrapping interest it
pays on banks' reserves, the sources added.
Faced with relentless pressure from Prime Minister Shinzo
Abe to do more to pull Japan out of deflation, the BOJ is
expected to double its inflation target and possibly boost its
long-running asset-buying scheme at a two-day policy review that
ends on Tuesday.
Any steps beyond that, however, would come as a surprise for
investors, possibly putting the yen under more selling pressure
and further boosting Japanese stocks, which have bolted to their
highest levels in nearly three years on hopes of bolder policy
The BOJ and the government are in final talks on the
contents of a joint policy statement they aim to issue on Jan.
22, and both have already agreed on the 2 percent inflation
goal, deputy economics minister Yasutoshi Nishimura told Reuters
in an interview on Friday.
"Governor (Masaaki) Shirakawa has been saying that 1 percent
inflation would be in sight before long but we have not reached
that stage yet," Nishimura said.
"If we share 2 percent inflation as a common objective, we
expect the BOJ to do something very aggressive."
But it has not been decided whether the statement will
include job growth as the central bank's mandate and how to
describe the timeline for achieving the inflation target,
although it is unlikely to set a specific deadline, he said.
MORE UNCONVENTIONAL STEPS
Abe, who led his Liberal Democratic Party to a landslide
victory in a Dec. 16 election with promises of aggressive budget
and monetary stimulus, has suggested adding job creation to the
BOJ's policy goals and making 2 percent inflation a medium-term
goal that should be achieved in two to three years.
Both are problematic for central bankers, who argue monetary
policy alone cannot achieve those goals and are wary of
committing to binding targets and deadlines.
But aware that investors have already priced in the new
inflation target and another expected increase of 10 trillion
yen ($112 billion) in the BOJ's asset buying and lending scheme
-- since October 2010 its main policy tool -- central bankers
are discussing other unconventional steps to maximise market
impact, sources told Reuters.
One option would be to replace incremental increases in the
asset programme with a U.S. Federal Reserve-style open-ended
pledge to continue buying assets until the inflation goal is
within reach, without setting a deadline for completing the
purchases, the sources said.
Another idea would be to pledge to maintain the balance of
the programme even beyond its end-2013 deadline, they said.
The BOJ will also consider scrapping the 0.1 percent
interest paid on financial institutions' reserves held with the
central bank, according to the sources, who spoke on condition
of anonymity due to the sensitivity of the matter. That rate has
effectively served as a floor to money market rates and kept
them from falling to zero.
Such a proposal from BOJ board member Koji Ishida was voted
down by 8-1 at the December meeting, but another board member,
Sayuri Shirai, said in a recent speech that the idea was worth
considering as a way to further push down interest rates and
help further weaken the yen.
The new government's push for more public spending -- it
approved 10 trillion yen in extra spending last week -- and
aggressive monetary easing has helped reverse the yen's gains,
setting off stock market rally led by exporters and construction
But many economists warn the stimulus may give the sluggish
economy only a temporary jolt at best if Abe's government fails
to follow through with politically more difficult economic
reforms needed to lift Japan's long-term growth potential.
They also warn that the push to reflate the economy
long-trapped in sub-par growth and low-grade deflation could
backfire if the new government's medium-term fiscal plan due in
mid-2013 fails to convince markets that it can get Japan's
ballooning debt back under control.
Shirakawa met with Finance Minister Taro Aso and Economics
Minister Akira Amari on Friday to narrow their differences over
the statement they aim to issue next week. The ministers are due
to fine-tune the statement with Abe once he returns from a trip
to Southeast Asia, according to a government source.