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Watanabe's Your Party to Push Inflation Target, Bank of Japan Policy Steps

Japan’s newest political force will “leverage” its popularity to push the government and the Bank of Japan to set an inflation target of 2 percent and seek further monetary easing, party chief Yoshimi Watanabe said.

Watanabe’s “Your Party,” formed less than a year ago, won 10 seats in the July 11 election for the upper house of parliament. His group garnered almost 8 million votes, the third-best tally behind Prime Minister Naoto Kan’s Democratic Party of Japan and the main opposition Liberal Democratic Party.

“We can now use our leverage to push for our agenda,” Watanabe, 58, said in an interview today in Tokyo. “Our priority is anti-deflation legislation because Japan’s economy faces the risk of a double-dip recession. We want to revise the BOJ law so the central bank and the government can agree on a goal of 2 percent inflation within two to three years.”

The ruling DPJ, which lost 10 seats in the upper house race, and most opposition parties agree on the need to end more than a decade of falling prices that threatens Japan’s economic recovery. The BOJ under political pressure unveiled a 10 trillion yen ($112.5 billion) loan program in December for banks and doubled the facility in March. In June, the bank released details of a separate 3 trillion yen plan to encourage lending to companies.

The central bank cut its benchmark interest rate to 0.1 percent in December 2008.

“The BOJ bears certain responsibility for the fact that Japan is still in deflation,” Watanabe, a former LDP financial services minister, said. He said the law guaranteeing the central bank’s independence should be revised to allow more government input.

“Theoretically it would be beneficial to discuss the right to dismiss the BOJ governor,” he said.

To contact the reporters on this story: Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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