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TOKYO (Reuters) - Japan's main opposition leader Shinzo Abe, seen as the most likely next premier if a snap election is held next month, called on the central bank to print "unlimited yen" to achieve a new inflation target.
In comments on Wednesday, he didn't spell out what the inflation target should be. But in recent weeks he has called for the Bank of Japan to achieve 3 percent inflation, three times higher than the current target, after years of deflation pressures.
Abe's remarks keep the Bank of Japan under pressure ahead of its two-day rate review next week when its policymakers may debate the need for further economic stimulus to try to lift an economy widely seen as in recession. Th e economy contracted 0.9 percent in the September quarter, data showed this week, and many analysts expect another contraction in the current quarter.
"The BOJ must set a (new) inflation target and print unlimited yen to achieve it. That's something similar to what the Fed and the ECB are doing. Only then would BOJ steps have a big impact on markets," Abe told a news conference.
"If we take power, we'd like to do our utmost to beat deflation," Abe said. "In doing so, monetary policy would be key."
He made the comments after incumbent Prime Minister Yoshihiko Noda said he was ready to dissolve the lower house of parliament on Friday and hold elections next month.
"There must be policy coordination" between the government and the central bank, Abe said, adding that if he were to take power, he could consider revising the BOJ law guaranteeing its independence from political interference.
Abe also said that following an election, the new government should compile a big supplementary budget and increase public works spending, suggesting that he would prioritise steps to boost growth over measures to put Japan's fiscal house in order.
The 10-year Japanese government bond yield hit a one-week high and the yen weakened after Noda's remarks on suggested dates for an election, as markets bet Abe's Liberal Democratic Party would win and put more pressure on the BOJ to ease policy.
Many traders expect the BOJ to hold off on easing policy next week to save its limited policy ammunition for next month, when more data will be available to gauge how long Japan's downturn.
But the central bank may revise down its economic assessment to reflect the economy's weakness even after easing policy in both September and October.
With interest rates effectively at zero, the BOJ has put in place as its key monetary easing tool a pool of funds to buy assets ranging from government bonds to corporate debt. It boosted the asset-buying and lending programme by 11 trillion yen to 91 trillion yen on October 30. (Additional reporting by Leika Kihara; Editing by Michael Watson and Neil Fullick)