Japan's Abe: No Fiscal Reform Unless Deflation Is Defeated

Shinzo Abe
AFP | Getty Images
Shinzo Abe

Incoming Japanese Prime Minister Shinzo Abe reiterated calls for the Bank of Japan to conduct bold monetary easing to beat deflation by setting an inflation target of 2 percent.

Abe, to be sworn in as Japan's next premier on Wednesday when he is also expected to name his cabinet, said his new government hopes to sign an agreement with the BOJ to aim for 2 percent inflation, double the central bank's current target.

"Once I become prime minister, I will leave it up to the BOJ to decide on specific measures on monetary policy," Abe told a meeting with officials from major business lobby, Keidanren, on Tuesday.

(Read More: Japan's Deflation Battle—Why This Time Is Different)

"I hope the BOJ pursues unconventional measures, including bold monetary easing," he added, keeping up pressure on the central bank to expand monetary stimulus more aggressively in order to beat the deflation that has plagued Japan for more than a decade.

Abe, whose opposition Liberal Democratic Party (LDP) won by a landslide in this month's lower house election, has threatened to revise a law guaranteeing the BOJ's independence unless the central bank sets a 2 percent inflation target.

The BOJ, which eased monetary policy in December, has promised to debate setting a new price target at its next policy-setting meeting on Jan. 21-22.

"With firm resolution we will work to beat deflation, correct the strong yen and achieve economic growth," Abe said, stressing that beating deflation was a prerequisite for fixing Japan's dire fiscal state.

The dollar rose to a 20-month high of 84.965 yen on Tuesday as investors continued to sell yen on expectations that Abe will nudge the central bank into taking bolder monetary loosening.