November 21, 2012 / 6:56 AM / 5 years ago

UPDATE 2-Japan opposition LDP pledges 2 pct inflation accord with BOJ

* LDP would consider private-public fund to buy foreign
    * Keeps call for aggressive monetary easing, BOJ law
    * 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.
    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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