The Bank of Japan began a two-day policy meeting Wednesday and its Policy Board members are likely to discuss the possibility of doubling its inflation goal to 2 percent as proposed by the incoming administration of Liberal Democratic Party leader Shinzo Abe.
The central bank will assess economic conditions to decide whether fresh action is needed, but it remains cautious about further monetary easing before a new government is formed following Sunday's general election, which resulted in a landslide victory by the LDP, sources close to the bank said.
The central bank is also watching how talks develop in the U.S. about avoiding the "fiscal cliff" of anticipated spending cuts and tax increases at the beginning of next year. Failure to address the issue could lead to the yen's sharp appreciation against the dollar and jeopardize Japan's economic recovery, the sources said.
On Tuesday, Abe urged BOJ Gov. Masaaki Shirakawa to seek an annual inflation rate of 2 percent for the consumer price index, and said his incoming government wants to reach a policy accord with the BOJ under which the bank would set an inflation target at that rate and keep pursuing monetary easing until achieving it.