resuming a moderate recovery. In October, it had said economic growth will remain flat for the time being.
Abe, the leader of the Liberal Democratic Party (LDP), has called on the BOJ for bolder action, including unlimited easing, pushing rates to zero or below zero and directly underwriting bonds issued to fund public works spending. His comments have driven the yen to a near seven-month low against the dollar.
The BOJ is unlikely to give in to some of the extreme demands, such as underwriting debt, but is weighing options beyond its asset-buying programme, having cut policy rates effectively to zero, sources say.
The BOJ set a 1 percent inflation target in February and has eased policy four times so far this year. Abe has talked of setting an inflation target of 2 percent or 3 percent.
Despite the political pressure, the BOJ is caught in a dilemma. Bank notes in circulation are rising and the balance of deposits that commercial banks park with the BOJ is at a record high of 44 trillion yen as a result of its ultra-loose policy.
But bank lending rose a meagre 0.9 percent in the year to October, a sign the extra cash has not prompted companies and households to borrow more for new spending.
Under the current law, the BOJ is free to set monetary policy. But the government nominates the governor, deputy governors and board members, subject to parliament approval, giving it power to sway the direction of policy. Shirakawa's five-year term ends in April and both his deputies retire in March, giving the new government a chance to select who fills the top posts.
Government pressure has frequently driven the central bank into easing policy, particularly when a rise in the yen raised calls for measures to ease the impact of the stronger currency on the export-reliant economy.
While Abe's remarks have helped lift Tokyo share prices on expectations of bolder monetary stimulus, some analysts say his demands are unrealistic and they doubt whether he will stick to them once in power.
Many economists also warn that threatening central bank independence or forcing it to underwrite public debt could trigger an unwelcome spike in bond yields by raising doubts in markets about Japan's ability to keep its fiscal house in order.
Prime Minister Yoshihiko Noda was quoted by Japanese media as saying that he was opposed to forcing the BOJ to