Wednesday, December 4, 2019 - 22:08

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:
--MNI Sydney Bureau; +61 405322399; email:

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