Kan says BOJ may need to do more against deflation: Nikkei

He also told the Nikkei that the government and the Bank of Japan share the view that Japan needs to escape deflation. Kan's remarks came after data showed on Friday that Japan's narrowest measure of consumer inflation fell at a record pace in December due to persistently weak domestic demand.

Kan on Friday urged the BOJ to align its policy with the deeply indebted government's efforts to fight deflation, maintaining pressure on it for possible monetary easing or even more government bond buying.

Prime Minister Yukio Hatoyama's government, which faces an upper house election in mid-2010, has little room to boost spending further as the national debt is now almost twice as big as the country's annual gross domestic product.

Credit ratings agency Standard and Poor's last week warned that it may cut the country's rating.

Analysts say the BOJ may be prompted to take further easing steps such as extending the fund-supply operation it introduced in December or increasing its monthly buying of government bonds.

The BOJ has been hesitant to increase its bond buying, arguing that doing so would give markets the impression the bank is underwriting public debt.

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