Abe, whose party is leading in the polls, said his government would issue construction bonds and have the bank purchase them. Prime Minister Yoshihiko Noda dismissed Abe's suggestion as "absurd." Masaaki Shirakawa, the bank's governor, expressed concerns about Abe's proposal. A price inflation goal of 3 percent was "unrealistic," he said, and would have a negative impact on the economy.
A direct purchase of construction bonds by the central bank "will have major adverse effects not only on fiscal reconstruction but also on the real economy," Shirakawa told reporters. But the governor defended the bank's policy announced in October to expand an asset-purchase program to about 91 trillion yen (1.11 trillion dollars) from 80 trillion yen to prop up the economy.
He has also advocated measures such as "decisive deregulation to raise the attractiveness of domestic investment and lay the foundations that encourage firms to be adventurous." Critics said both Noda and Abe have downplayed the government's sales-tax hike and the increasingly divisive issue of nuclear energy.
The nation's 54 nuclear reactors were built across the country under the LDP's watch. The tax-hike legislation was passed with the help of the Liberal Democratic Party (LDP) and the New Komeito, backed by Japan's largest lay Buddhist organisation Soka Gakkai. Noda's ruling Democratic Party of Japan (DPJ) is facing public criticism as the hike went against his party's election pledge three years ago.
The DPJ won a landslide victory in the 2009 election, ending more than a half-century of nearly unbroken rule by the LDP. Critics say the major media and the three parties, seen as pro-business, which voted for the tax-hike, have also downplayed longstanding problems of job creation and unstable forms of employment.
The ratio of temporary and part-time workers in the labour force hit a record high of 35 percent in 2011. About half of people in their 20s are without full-time jobs and many need more than one job due to lower wages, labour groups said. The newly formed Tomorrow Party of Japan has opposed the tax hike, saying the government should first deal with the nation's lingering deflation, which erodes company profits and contributes to unemployment.
The Tomorrow Party said it would work on programs to expand domestic demand to revive the economy and combat deflation. The party also said it would help get temporary workers a full-time job. One of Japan's big problems is that "consumer spending is a chronic structural defect of Japan not growing its economy," said Richard Katz, a long-time Japan watcher and the editor of the Oriental Economist. "Consumer spending is very, very low."
But some argued that consumers are refusing to spend money because they feel uncertain about the future. Katz said this theory is not borne out by the figures. "If consumers were refusing to spend, that would mean their saving rates or income would be rising."
However, Japan's household saving rates stood at 1.9 percent in 2012, compared with 12.9 percent in 1994, according to Organisation for Economic Co-operation and Development statistics. "It's quite the opposite," Katz said. "The source of anaemic consumer spending is consumers don't have enough money."