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MNI (London)
By Hiroshi Inoue
     KOFU, Japan (MNI) - The Bank of Japan will need to strengthen its easy
policy without hesitation if it becomes more difficult to hit the 2% price
target, policy board member Yutaka Harada said  Wednesday. 
     Harada also warned that the current economic climate and prices may be weak
and October's planned consumption tax hike to 10% from 8% "could push the
economy into recession, and a resultant decrease in demand could push down
     In his speech to business leaders in Kofu City, Harada, however, indicated
that he see further easing as imminent, adding the BOJ needs to carefully
monitor upcoming data and examine the outlook.
     At the January 22-23 meeting, the BOJ board kept monetary policy unchanged,
as Japan's economy is expanding moderately despite emerging downside risks.
     The board decided voted 7-to-2 to stand pat on the yield curve control
policy and the asset purchases, maintaining its recovery scenario as a worsening
of economic conditions hasn't been observed through economic data.
     The BOJ vowed to maintain the current easy policy "for an extended period
of time."
     On forward guidance, Harada, former government economist, dissented,
arguing that it would be better to adopt guidance that would "further clarify
its relationship" with the inflation target.
     Other key points from Harada's speech:
     --Japan's economy has been recovering due to QQE. "However, there is
concern about the risk of a deterioration in economic activity going forward due
to the fall in stock prices since the end of 2018."
     --Harada also voiced concern over the impact of the slowing Chinese economy
on Japan, saying, "Japan's production and exports are linked with China's
imports. This means that, if China's imports were to decrease, this would be
cause for concern regarding the outlook for Japan's production and exports."
     --"There is a risk that the current sluggishness in observed prices will
spill over to inflation expectations, further delaying inflation."
     --If those risks materialized, "I think it would be necessary to implement
additional monetary easing without delay through quantitative, qualitative, and
interest rate policy measures."
     --"Until last year, there had been debate over financial imbalances and a
potential bubble. However, because stock prices have dropped substantially since
then, it would be rather unreasonable to argue that there are financial
imbalances in the stock market now."
     --"If monetary easing is discontinued, prices will decline, the economy
will deteriorate, and nominal interest rates will decline. Financial
institutions seem to expect that, in the case of a rise in interest rates, only
the rates on investment will increase without any changes in foreign exchange
rates as well as prices of stock and bonds, or a decline in firms' willingness
to borrow. I am afraid this is not realistic."
     --"Premature policy tightening in the past caused economic deterioration, a
decline in both prices and production, and lowered interest rates in the long
run. It can be said to have played a role in creating the challenges faced by
the financial industry today."
     --The economy may be weak, and the same can be said about prices. "Even so,
if the economy continues to recover, the labor market will tighten and prices
will rise eventually."
--MNI London Bureau; tel: +44 203-586-2225; email:
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
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MNI London Bureau | +44 203-865-3812 |