By Stanley White
TOKYO (Reuters) - Prime Minister Shinzo Abe met Bank of Japan Governor Haruhiko Kuroda on Tuesday but did not pressure the central bank chief to ease policy, curbing speculation that the BOJ might take more aggressive action this month.
Over lunch, Abe and Kuroda "took plenty of time to discuss economic conditions and so forth in a calm manner," said Chief Cabinet Secretary Yoshihide Suga.
The premier did not ask Kuroda to take further measures to bolster the world's third-biggest economy and pull it out of deflation, Kuroda and Suga told reporters separately.
Kuroda and other BOJ officials have repeatedly expressed confidence that this month's increase in the national sales tax will not derail the economy or prevent inflation from hitting the central bank's 2 percent target.
However, many economists and traders say the BOJ will have to ease policy again - perhaps in July - as consumer price gains are likely to stall. The BOJ has had trouble bridging this gap in perception about future policy moves.
Kuroda said he told Abe "that if there were any developments that threatened to damage progress towards achieving our inflation target that I would adjust policy without hesitation."
The central banker also reiterated that while the economy is moving steadily towards the inflation target, "we're only half way through".
News that Abe did not pressure Kuroda to ease further briefly pushed up the yen, which has fallen sharply in the year since Kuroda unleashed the BOJ's unprecedented easing, buying massive amounts of bonds and other assets to flood the financial system with Japanese currency.
NEXT POLICY REVIEW
The BOJ's next policy meeting is on April 30, when it will update its economic forecasts.
The BOJ's huge government bond purchases put the central bank's holdings over 200 trillion yen ($1.96 trillion), some 20 percent of outstanding issuance, data showed this week. This has sucked so much liquidity out of the market that the benchmark 10-year bond went untraded for almost two days, the first time in 13 years.
Some aides close to Abe want the BOJ to do more, fretting that the rise in the sales tax on April 1 to 8 percent from 5 percent may hit the economy more than expected and delay an exit from deflation.
But the ardour of even these reflationists may be ebbing. Former BOJ policy board member Nobuyuki Nakahara, an informal Abe adviser, is now telling Abe that the central bank can wait until next year to ease.
Nakahara told Reuters on Tuesday that it takes time for monetary policy to take effect, so it is too soon to expect further easing just a year after Kuroda's easing.
Just as the Federal Reserve has eased U.S. policy three times since 2008, the BOJ should be ready to continue with monetary easing for five or six years, he said.
Government officials have applied pressure on the BOJ in the past, raising doubts about the central bank's independence.
But that has not prevailed as the mainstream view in the government this time and the BOJ is barely facing any political pressure, with key members of Abe's cabinet like Economics Minister Akira Amari praising the BOJ for doing "extremely well".
The BOJ has stood pat since deploying an intense burst of stimulus last April, when it pledged to double base money via aggressive purchases of government debt and risk assets to accelerate inflation to 2 percent in roughly two years and decisively end 15 years of deflation.
Abe and Kuroda meet regularly in groups such as a major government advisory panel, but Tuesday's meeting was the first one-on-one since December. Kuroda said it was "nothing special" and simply part of the regular face-to-face exchanges that occur between Japan's prime minister and its central bank governor.
(Additional reporting by Yoshifumi Takemoto and Kaori Kaneko; Editing by Chris Gallagher, William Mallard and Ron Popeski)