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Reflationary BOJ board member brushes off talk of early stimulus exit
November 30, 2017 / 2:51 AM / in 12 days

Reflationary BOJ board member brushes off talk of early stimulus exit

FUKUSHIMA, Japan (Reuters) - Bank of Japan board member Yutaka Harada said on Thursday the central bank had no reason to wind back its ultra-easy monetary policy as inflation remained well below its 2 percent target.

Bank of Japan (BOJ) board member Yutaka Harada points at a reporter during news conference at the BOJ headquarters in Tokyo March 26, 2015. REUTERS/Yuya Shino/File Photo

A vocal advocate of aggressive monetary easing, Harada defended the BOJ’s massive stimulus program, saying it was helping to reflate the economy and had kept the yen stable.

“Since the introduction of quantitative and qualitative easing (QQE) and the 2 percent inflation target, the yen has moved in a range of 100-120 yen, and appears to be roughly stable at around 110 yen,” Harada said.

“I think this situation can be described as stable, taking into account the yen rose from 120 to 80 against the dollar around the time of the 2008 financial crisis.”

The BOJ should withdraw stimulus only after confirming that price rises have gained enough momentum for meeting its target, Harada told business leaders in Fukushima, northeastern Japan.

“If the current monetary policy is maintained, labor shortages will intensify further as the economy improves, and there will be a phase in which both wages and prices increase,” he said. “If their momentum is strong enough, the BOJ will start reducing the level of monetary easing.”

Harada brushed aside criticism by some analysts that delays in rolling back stimulus could destabilize the banking system, saying the merits of ultra-easy policy still outweigh the costs.

“Some people say that, because central banks in the United States and Europe are heading for the exit, Japan should follow suit,” Harada said.

“However, it makes perfect sense to me that Japan’s exit should come later than theirs” as inflation is still below 1 percent, he added.

Harada said he saw no need to ramp up stimulus either, distancing himself from the view of board newcomer Goushi Kataoka that the BOJ should ease further to ensure its price goal is met quickly.

“We would need to take additional easing steps if the economy is hit by an external shock and the current stimulus becomes insufficient,” Harada told reporters after the meeting with the business leaders.

The BOJ has not reached any decisions on an exit policy for its stimulus program, but possible steps that could be taken include abandoning negative interest rates, raising the interest applied to excess reserves financial institutions park at the BOJ or selling the BOJ’s holdings of government bonds, he said.

Harada is considered as among those in the nine-member board who emphasize the positive impact that huge money printing could have on the economy and inflation, rather than the demerits of prolonged easing such as the hit to bank margins.

Still, he has voted with the majority of the board including at last year’s decision to shift to a policy framework targeting interest rates instead of the pace of money printing.

Reporting by Leika Kihara; Editing by Minami Funakoshi, Simon Cameron-Moore and Kim Coghill

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