The Bank of Japan should signal its commitment to beating deflation by gradually extending the duration of government bonds it targets under its asset-buying scheme and eventually buying those with up to 10 years until maturity, a senior ruling party lawmaker said on Wednesday.
Tsutomu Okubo, deputy policy chief of the Democratic Party of Japan, also said the central bank should buy more risk assets, such as funds investing in real estate and shares, though he stressed it was ultimately up to the BoJ to decide what steps to take to boost the economy.
While declining to comment on whether the BoJ should ease monetary policy on Friday, Okubo signalled his hope for action by saying it was desirable for Japan to see 1 percent inflation - a level the central bank now targets - "relatively soon."
At Friday's rate review, the BoJ is likely to ease monetary policy by boosting its asset purchases by up to 10 trillion yen ($123 billion), and in doing so may extend the maturity of government bonds it targets to around three years, sources have told Reuters.
"I think as a trend, the duration (of bonds the BoJ buys) will be extended," Okubo, in charge of mapping out the party's stance on financial affairs, told Reuters in an interview.
"We are judging the BoJ's determination (to beat deflation) by the duration of government bonds it buys." The BoJ is likely giving itself leeway to exit its ultra-easy policy at any time by limiting the government bonds it buys under its 30 trillion yen asset buying scheme to those with maturities of up to two years, Okubo said.
But the central bank should initially extend the duration of the bonds it buys to five years and eventually commit to buying those with up to 10 years until maturity if necessary, he said.
A commercial banker turned upper house lawmaker, Okubo has close contacts with senior BoJ and government officials, and is well-versed in monetary and financial affairs. He is a senior member of a ruling party panel that is discussing measures to beat deflation and ease the pain from the strong yen on the economy.
Prolonged weakness in the economy, particularly domestic demand, has kept Japan stuck in mild deflation for more than a decade despite the central bank's ultra-easy monetary policy.
Deflation, or persistently falling prices, can hurt economic activity as companies and households put spending on hold to wait for yet lower prices.
The government, eager to keep the economy strong enough to weather the pain from much-needed tax hikes to fix Japan's tattered finances, has piled pressure on the central bank to act more aggressively to beat deflation. The BoJ responded in February by boosting asset purchases by 10 trillion yen and setting a 1 percent inflation target, but this has not eased political pressure for bolder steps. Okubo, while calling for further easing in general, said he disagreed with some lawmakers demanding a revision to the BoJ law so that the government can meddle in monetary policy.
"I don't see the need to revise the BoJ law. The central bank's independence is very important," he said, adding that politicians should not interfere too much on monetary policy, which is best left to professionals at the central bank.
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