TOKYO - The Bank of Japan entered a new stage of monetary easing Tuesday, setting a 2 percent inflation target under pressure from Prime Minister Shinzo Abe, who has asked the central bank to take more action to overcome chronic deflation and the strong yen.
In a joint statement with the government released after the end of its Policy Board meeting, the bank pledged to "pursue monetary easing and aim to achieve the inflation target at the earliest possible time," suggesting it will implement aggressive monetary easing.
The government, formed Dec. 26, meanwhile promised to promote growth strategies through regulatory reforms and make efforts to restore Japan's precarious fiscal health, the worst among developed countries, to prevent long-term interest rates from surging.
The government "will steadily promote measures aimed at establishing a sustainable fiscal structure with a view to ensuring the credibility of fiscal management," the statement said.
To pump more money into the financial market, the BOJ decided to adopt "open-ended" easing steps similar to those of the U.S. Federal Reserve, such as buying government bonds and other relatively safe financial assets from financial institutions without setting a deadline.
BOJ Governor Masaaki Shirakawa, Finance Minister Taro Aso and economic and fiscal policy minister Akira Amari are slated to meet later Tuesday.
Amari attended the bank's policy meeting from Monday with a senior vice finance minister. The two government representatives do not have voting rights, but they can submit proposals and voice opinions.
It was the first time in over nine years for the BOJ to move to make financial conditions more accommodative for two consecutive policy meetings. In December, the central bank expanded its asset purchase program by around 10 trillion yen to a total of 101 trillion yen.
The joint statement stipulated the BOJ's responsibility to regularly explain its progress toward achieving the 2 percent inflation target at meetings of the Council on Economic and Fiscal Policy, a key government policy panel of which the bank's chief is a member.
Pressure on the BOJ to take more action from the monetary side is mounting with Japan's economy having contracted for a second straight quarter in the three months through September, shrinking an annualized real 3.5 percent, indicating it has entered a mild recession amid sluggish demand both at home and abroad.
In its own statement, the BOJ also called on the government to "surely implement measures, specified in the 'Joint Statement,' such as carrying out bold regulatory and institutional reforms, and furthermore, steadily promote measures aimed at establishing a sustainable fiscal structure."