TOKYO (Reuters) - Political pressure on the Bank of Japan to expand stimulus this week is intensifying with the economy minister calling on the bank to work with the government to boost growth, in the wake of premier Shinzo Abe's announcement of a bigger-than-expected fiscal spending package.
Abe sent a "powerful message" by announcing the 28 trillion yen ($267 billion) stimulus package on Wednesday, Economy Minister Nobuteru Ishihara was quoted as saying by Japanese media hours after the announcement.
"I think people at the BOJ will take into that account and make an appropriate decision," he said in a television appearance on Wednesday evening, the Kyodo news agency reported.
"I think (BOJ Governor Haruhiko) Kuroda understands that the world is watching" the bank's policy response, Ishihara said.
The remarks suggest the earlier-than-expected announcement of Abe's economic package was an attempt by the government to pressure the BOJ into expanding stimulus at a two-day rate review ending on Friday.
"Abe's announcement is a squeeze play on the BOJ. The BOJ has to move now. It is unavoidable," said Hiroaki Muto, an economist at Tokai Tokyo Research Center.
"There is a growing sense that the BOJ cannot move the market on its own, which is part of the reason why the government wants to combine fiscal and monetary policy."
Finance Minister Taro Aso told reporters on Tuesday that he hoped the BOJ would continue to do its utmost to beat deflation, reinforcing the government's eagerness to see more BOJ monetary easing.
Abe's announcement of the package boosted Japanese stocks on Wednesday and reinforced market expectations that the BOJ will match fiscal stimulus with another dose of monetary expansion.
There is near-consensus in markets that the BOJ will sharply cut its inflation forecasts, delaying the timeframe for hitting its 2 percent inflation target and further ease monetary policy.
Many BOJ policymakers prefer to hold off on easing on Friday, worried about the rising costs and diminishing returns of an already massive asset-buying program that is drying up bond market liquidity.
But Ishihara's remarks suggest that political considerations may nudge the BOJ into action, even as the central bank struggles to beat economic headwinds with its dwindling policy tool-kit.
Sources familiar with the deliberations say finance ministry officials have been pressuring the BOJ behind the scenes to ease on Friday to drive borrowing costs even lower.
Kuroda, a former finance ministry bureaucrat, has ruled out the chance of adopting "helicopter money," or direct underwriting of public debt. But he has also stated there was "nothing wrong" in coordinating fiscal and monetary action to boost the effect on growth.
Pressure for BOJ easing intensifies as economy minister urges action