Bank of Japan will work with new government

The head of Japan's central bank has vowed to work with the nation's new government to tackle deflation, according to an interview published Saturday. "The Bank of Japan, not just the government, will support efforts to strengthen growth potential," Masaaki Shirakawa told the Nikkei business daily. Shirakawa added that both monetary easing and measures to strengthen economic growth were necessary to boost inflation. He made the remarks after Shinzo Abe, sworn in as Japan's prime minister on Wednesday, proposed the BoJ set a two per cent inflation target in a bid to fight deflation that has plagued the world's third largest economy for years. On Thursday, newly appointed finance minister Taro Aso also hit out at the BoJ, saying it was "slow" in tackling deflation. But Shirakawa stopped short of agreeing to the proposed target, only saying: "We hope to thoroughly discuss figures at the next policy board meeting (in January). What will be important is securing flexibility within monetary policy." Deflation continues to pose a threat to Japan's recovery as a fall in prices eats into corporate profits, leading firms to slash jobs and put off growth-generating capital investment. It also hurts demand because it encourages consumers to put off making purchases in the hope of paying less further down the road. In its previous board meeting last week, the BoJ launched its third round of easing since September after counterparts in the US and Europe also ushered in huge moves to counter slowing growth. The move was widely seen as a bow to Abe, whose comments have been viewed as a direct challenge to the BoJ's independence in setting policy.