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Japan PM, opposition chief clash over monetary policy

MYT 2:00:02 PM

TOKYO (Reuters) - Japanese Prime Minister Yoshihiko Noda said on Sunday that the opposition's call for radical monetary easing to beat chronic deflation was "dangerous" and defended the independence of the central bank, countering arguments by the front runner in next month's election.

Noda and the leader of the Liberal Democratic Party (LDP), Shinzo Abe, differed sharply over monetary and foreign policy in separate television appearances ahead of the December 16 election which the opposition party is tipped to win in opinion polls.

Japan's Prime Minister Yoshihiko Noda prepares for a session of the 21st ASEAN (Association of Southeast Asian Nations) and East Asia summit in Phnom Penh November 20, 2012. REUTERS/Damir Sagolj
Japan's Prime Minister Yoshihiko Noda prepares for a session of the 21st ASEAN (Association of Southeast Asian Nations) and East Asia summit in Phnom Penh November 20, 2012. REUTERS/Damir Sagolj

Abe reiterated his call for setting a 2 percent inflation target, which is double the current goal of the Bank of Japan, to pull the world's third-largest economy out of a long spell of deflation.

The LDP leader also called for revising the law governing the BOJ so that the central bank is held responsible not only for price stability but also for job creation and the health of the real economy.

He said the BOJ must buy construction bonds from the market to finance infrastructure spending to rev up the economy which is sliding into a recession.

"It is a dangerous way of thinking," Noda said in a TV Asahi programme. "It would undermine the central bank's independence if the government lays out the objective of monetary policy and mentions specific methods ..."

"It would be too complacent to think that the economy will improve by printing money," Noda added.

The two leaders also differed on foreign policy especially the LDP's proposal to post public servants on a permanent basis on islands at the centre of a territorial row with China to boost Tokyo's effective control.

"Putting personnel there at this time could cause further escalation of tensions. The bilateral relationship would be jeopardised if we don't have a severe view on the current circumstances," Noda said.

Sino-Japanese ties worsened sharply after the Japanese government in September bought some of the disputed islets in the East China Sea, hurting bilateral trade and investment.

"Our beautiful oceans are being threatened as Chinese ships are entering our territorial waters one after another," Abe said. "Would it be a positive message if we said, just like Prime Minister Noda does, that we would give them special considerations?", calling for a firmer response.

(Reporting by Tetsushi Kajimoto; Editing by Sanjeev Miglani)

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