Yutaka Harada: Why 2% inflation in Japan is not that easy
A couple of remarks from Bank of Japan board-member Yutaka Harada shed light on why the central bank stood pat at its October 30 meeting.
Some say that Harada, speaking in Tochigi, was downbeat, or better to say, more realistic, than his boss Haruhiko Kuroda - BoJ's head.
His outlook on the economy and
inflation is "slightly weaker" than the one the central bank stocks to.
In his speech, he referred to overseas risks: downturn in emerging markets, especially China, a surprising shock from the U.S. looming interest rates increase, as well as Europe's debt crisis resurfacing.
Japan's regulator "should implement additional monetary easing without any hesitation," he said, if these threats hit Japan.
Bank of Japan Policy Board Member Yutaka Harada
However, Harada was less worried about the means of domestic support, i.e. consumption and exports. Neither is exactly firing on all cylinders, but he has a similar outlook to Mr Kuroda, which highlights how the tight labor market will generate a "virtuous cycle of income to spending."
The thing is: when almost half of economists expected the BoJ to trim its inflation target in October and then respond with fresh stimulus efforts, Mr Harada downplayed the necessity to hit the banks' 2% inflation target right away.
"Prices have not risen as much as initially had been expected, but I
think that QQE would be criticized as a serious failure if prices rose
without employment growth."
"Prices eventually will start rising as the output gap in the overall economy tightens. We will be able to confirm by the end of fiscal 2015 that the year-on-year rate of increase in the CPI is accelerating toward 2 percent."
For all these conversations about the desire to reach the inflation target "at the earliest possible time," Mr Harada admits that until wages and the economy are growing, firing up inflation isn't a worthy goal.
