Japan PM favourite to push 'unlimited' easing

The frontrunner to become Japan's next prime minister unofficially kicked off his election campaign Thursday by vowing to pressure the central bank to carry out "unlimited" easing to kickstart the economy.

Shinzo Abe, a former prime minister, also said that if his opposition Liberal Democratic Party wins next month's general election he may boost defence spending amid a bitter territorial row with China.

In a speech in Tokyo he promised to strike an agreement with the Bank of Japan that would see it usher in more stimulus to spur growth and push inflation towards 2-3 percent, dragging it out of a deflationary spiral that has haunted the economy for years.

"Only by implementing unlimited easing to achieve this target will the market show reaction," Abe said a day after a senior official in Prime Minister Yoshihiko Noda's ruling Democratic Party of Japan (DPJ) confirmed a national poll for December 16.

"If we come into power, we will implement bold monetary easing through an accord forged with the Bank of Japan."

The yen dived after the comments, as easing measures would see a flood of cash hit global markets.

The dollar hit a seven-month high of 80.94 yen at one point and the euro rising to 103.21 yen, compared with 80.23 yen and 102.19 yen in New York late Wednesday.

Abe did not give further details and it remained unclear how he would reach a deal with the bank, which is independent from government.

Last month, the BoJ, already under pressure from ruling lawmakers, unveiled about $138 billion in fresh monetary easing, its latest effort to prop up the world's third-largest economy.

The BoJ said it would expand an asset-purchase programme -- its main policy tool -- by 11 trillion yen ($138 billion) to 91 trillion yen, but lawmakers have called for further measures to kickstart growth.

Abe also said Thursday that he would boost the Japanese coastguard's budget and consider hiking defence spending to counter China's rising military clout, with Tokyo and Beijing embroiled in a row over an East China Sea island chain.

"This is to maintain the power balance with China," he said.

Ties between the two sides have deteriorated since September, when Tokyo nationalised some of the islands -- called the Senkakus in Japan and Diaoyus in China -- which have been at the centre of a long-standing territorial dispute.

The move sparked protests across China and boycotts of Japanese products.

Abe's speech is the first ahead of the election that was confirmed Wednesday, ending months of speculation.

The centre-left DPJ ousted the LDP from power in 2009 polls, ending the conservative party's almost unbroken rule of Japan for more than half a century.

But opinion polls in recent months have made dismal reading for Noda, with public support leaching away from his fragmenting party.

-- Dow Jones Newswires contributed to this article --

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