Government's deflation pledge a message to BOJ-media

TOKYO, Nov 23 - The government's declaration that Japan was back in deflation was a message to the Bank of Japan to do its part to support the economy, National Strategy Minister Naoto Kan said in a newspaper interview published on Monday.

"The BOJ made an announcement that appeared to signal that it was approaching an end ," Kan said, referring to the central bank's decision last month to begin withdrawing support for corporate finance. [ID:nT32693]

"I hope the BOJ maintains its stance that it's too early to consider an exit ," Kan, who also heads a ministry in charge of economic analysis, said in the interview with Asahi Shimbun.

The BOJ on Friday kept interest rates near zero and upgraded its economic assessment, despite grumblings from the government, worried about deflation and the risk of another recession. [ID:nT263401]

Hours after the rate decision, the government published a report pronouncing the economy officially in deflation for the first time since 2006, warning of the risk that price falls could depress a fragile economy barely out of its worst recession in decades.

The BOJ forecasts three years of price falls and has pledged to keep interest rates near zero for as long as necessary. But it has said that when demand is weak, there was very little monetary policy can do to push up prices beyond maintaining low rates.

The government, for its part, is mulling an extra stimulus budget to support growth. But Japan's large debt burden means the size of the stimulus won't be big enough to give the economy much of a boost.

The extra stimulus budget will include steps to create jobs and an extension of subsidies to low-emission cars and electronic appliances, which are set to expire early next year, the Yomiuri Shimbun reported on Monday.

LINKS > Government says economy back in deflation [ID:nTKF106753] > Japan deflation seen easing slightly in Oct-poll[ID:nT271315] ((leika.kihara@thomsonreuters.com; +81-3-6441-1828; Reuters Messaging: leika.kihara.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))