A senior Bank of Japan official said today that the kind of inflation-targeting that has been hotly debated in Japan as a way of ending deflation would not work and could even destabilise financial markets.
Reiterating the BOJ's opposition to such a policy, under which the central bank would aim to boost prices by a certain deadline, BOJ Executive Director Mr Masaaki Shirakawa said it was a totally different concept from inflation targets used abroad.
"If there were to be any change, that would be when markets start to expect authorities to take extreme actions that would undermine the credibility of the Japanese economy," Mr Shirakawa told parliament's Lower House budget committee.
"In that case, there will be a lot of moves - destabilising moves - in the market. The yen and our government bonds have won trust from investors, including overseas investors, but if we should lose it, that would be a big obstacle to ending deflation and reviving Japan's economy."
Many politicians and economists want Prime Minister Junichiro Koizumi to appoint an inflation-target advocate to succeed BOJ Governor Masaru Hayami, whose five-year term ends on March 19th.
They see the policy as the litmus test for Mr Koizumi's resolve to fight deflation, which has hobbled Japan's economy for more than three years.
Later today, Economics and Financial Services Minister Mr Heizo Takanaka put fresh pressure on the central bank to adopt inflation-targeting as a means to boost the amount of money circulating in the economy.