MNI POLICY: BOJ Harada Voices Concern Over Premature Rate Hike

     OITA, Japan (MNI) - Bank of Japan board member Yutaka Harada voiced concern

on Thursday on the impact of a premature rate hike, and emphasized the need to

keep the current accommodative monetary policy.

     "If the BOJ were to raise interest rates now, this would revive the

deflationary mindset and consequently further delay increases in prices and

interest rates," Harada told business leaders in Oita City.

     "This would not benefit the banking sector either."

     Harada didn't elaborate on the current economic climate, which is dominated

by debate on downside risks to economic activity and prices, and the outlook for

monetary policy.

     Harada, although one of the BOJ's more dovish board members, did not

propose more easing at recent board meetings.

     At the latest policy meeting on October 30-31, the BOJ left policy

unchanged, rejecting the chance to take some insurance and take pre-emptive

policy action as it maintained the view that the recovery was continuing.

     The BOJ did, however, tweak its forward guidance, indicating that it would

tolerate policy rates moving below the current levels.

     "As for the policy rates, the BOJ expects short and long-term interest

rates to remain at their present or lower levels as long as it is necessary to

pay close attention to the possibility that the momentum toward achieving the

price stability target will be lost," the BOJ said in October.

     The previous forward guidance was that the BOJ would maintain the current

easy policy until "at least around spring 2020."

     Other key points from Harada's speech:

     --"Considering that the current low interest rates are partly attributable

to the deflation monetary policies pursued in the past, the only way out is to

maintain the current accommodative monetary policy in order to achieve sustained

expansion of economic activity until we see increases in prices and interest

rates."

     --"It was only after the introduction of QQE that real GDP per working-age

person started to increase; therefore, raising interest rates would just throw

us back. That is, raising interest rates would lead to the following; an

appreciation of the yen, falling stock prices, declines in exports, investment,

consumption and employment, and the reemergence of the employment ice age."

     --"If inefficient firms are to be forced to exit the market, it is much

better if this occurs through labor shortages and upward wage pressures." 

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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