By Stanley White and Leika Kihara

TOKYO, Jan 11 (Reuters) - Japanese Prime Minister Shinzo Abe

made his biggest push yet to make jobs growth part of the Bank

of Japan's mandate as his government approved $117 billion of

spending to revive the economy in the biggest stimulus since the

financial crisis.

Under intense pressure from Abe, the BOJ will likely adopt a

2 percent inflation target at its Jan. 21-22 rate review, double

its current goal, and consider easing monetary policy again,

most likely by increasing government debt and asset purchases,

sources told Reuters this week.

Japan's current account, which is normally in surplus, swung

to a rare and hefty deficit in November, which helped push the

yen to a 2-1/2 year low against the dollar and

highlighted the need to support the economy as exports weaken.

Abe's recipe to jolt Japan from years of deflation is big

fiscal spending and central bank purchases of government debt,

but there are risks as the country's debt burden is already the

worst among major economies.

'Bold monetary easing is essential in beating deflation and

a strong yen,' Abe said as he unveiled direct spending worth

10.3 trillion yen ($117 billion) on public works, incentives for

corporate investment and financial aid for small firms.

Taken together with spending by local governments and

private-sector firms, the size of the entire package was 20.2

trillion yen, according to government officials.

The government expects the stimulus to raise real economic

growth by 2 percentage points and create 600,000 jobs.

BOJ WANTS FLEXIBILITY

Abe has made aggressive monetary policy to end almost 20

years of deflation a top priority after his Liberal Democratic

Party (LDP) won elections last month.

In an interview with the Nikkei newspaper on Friday, he

repeated his calls for the BOJ to add job growth to its mandate

like the U.S. Federal Reserve, which is the only major central

bank that commits to boosting job growth as well as keeping

inflation in check.

The BOJ is strongly opposed to adding job growth to its

mandate for fear of binding its hands on future policy, although

it may accept a phrase in the statement that creating more jobs

would be a shared objective with the government, said sources

with knowledge of the negotiations on the statement.

'I think the BOJ can respond to Abe's calls on employment

within the existing framework of the BOJ Law by placing a little

more emphasis on employment in its forecasts,' said Hiroshi

Miyazaki, chief economist at Shinkin Asset Management in Tokyo.

'But when it comes to inflation, it's really hard to get

consumer prices to rise 2 percent in the short term. Prices lag

the economy by about a year and we've been in recession since

last year.'

The joint statement, now being negotiated by government and

BOJ officials, will likely include 2 percent inflation as the

bank's new target and a pledge to continue with aggressive

monetary easing to beat deflation, the sources said.

But it is unlikely to set a specific deadline for achieving

the target and leave the central bank some flexibility in

guiding monetary policy. The key would be how to phrase the

commitment as Abe told the Nikkei that such a target would be

meaningless if it had too long a timeframe.

The BOJ also hopes to stress in the statement the inflation

target is a long-term goal and won't be achieved unless monetary

easing steps are accompanied by government efforts to boost

growth potential such as deregulation, the sources said.

The public seems to agree that ending deflation will not be

easy.

A quarterly survey by the BOJ showed on Friday that 53

percent of the respondents expect prices to rise a year from

now, down from 62 percent in the September survey. Of the total,

38 percent expect prices to remain largely unchanged a year from

now, while nearly 8 percent see them falling.

EXTRA BONDS

Abe's calls for bolder BOJ easing helped the yen hit 89.35

per dollar on Friday, its weakest since 2010, and briefly pushed

down the 5-year government bond yield to 0.150 percent, within

sight of a record low hit in 2003.

But bond yields rose at the long end of the curve as the

government's plans for more public works spending meant it will

sell around 5 trillion yen more bonds than originally planned

for the current fiscal year.

The BOJ will remain vulnerable to pressure from Abe as his

government has the right to choose a successor to BOJ Governor

Masaaki Shirakawa when his term expires in April.

Kazumasa Iwata, a former BOJ deputy governor seen as a

strong candidate to head the bank, said that while the central

bank shouldn't be asked to achieve its price target by a certain

deadline, it should focus more on job growth.

'With flexible inflation targeting, one role of monetary

policy could be to limit how much prices and the jobless rate

deviate from a pre-determined level,' Iwata, who now heads a

private think tank, told a seminar on Friday.

'Looking at Japan, I don't think wages will improve much

unless the jobless rate falls to around 3.5 percent.'

The unemployment rate in December was 4.1 percent.

Haruhiko Kuroda, president of the Asian Development Bank

also seen as a possible BOJ governor candidate, was more blunt.

'It's important to commit to an unlimited amount of easing,

not a few trillion yen here and a few trillion yen there.'

($1 = 88.2000 Japanese yen)

(Additional reporting by Tetsushi Kajimoto and Kaori Kaneko;

Editing by John Mair & Kim Coghill)

Keywords: JAPAN ECONOMY/

(stanley.white@thomsonreuters.com)(+81 3 6441 1984)(Reuters Messaging: stanley.white.reuters.com@reuters.net)

COPYRIGHT

Copyright Thomson Reuters 2013. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.