Reuters/Tokyo


New Bank of Japan board member Yutaka Harada said yesterday it is “impossible” to consider the central bank’s 2% inflation target and the two-year timeframe for achieving it as “rigid” goals.
The remark contradicts BoJ Governor Haruhiko Kuroda’s stance that the central bank ought to persist in hitting 2% inflation within a deadline, which is now set for during or around the fiscal year that will begin April 1.
The BoJ adopted in April 2013, and expanded in October last year, quantitative and qualitative easing to accelerate inflation to 2% in a country that has been mired in deflation for the past decade-and-a-half.
But core consumer inflation slowed to 0.2% in January due largely to the pressure from falling oil prices, keeping alive market expectations of further monetary easing.
“Various things happen in the economy, so it’s hard and even impossible to consider the 2% inflation target and the two-year timeframe for hitting it as rigid goals,” Harada told his inaugural news conference.
“But the 2% inflation target is an important commitment and led to the current economic recovery,” he said.
A former Waseda University professor known as a vocal advocate of aggressive monetary easing, Harada replaced Ryuzo Miyao, an academic whose five-year term ended on Wednesday. Harada added there was still room to expand the BoJ’s government debt purchases but saw no need to ease policy now, which would quell speculation that the central bank would expand policy next month.
He also indicated he was likely to vote in line with the BoJ governor, meaning he could support Kuroda in the future if further monetary easing was needed to push up inflation.
Harada said a lack of improvement in Japan’s deflationary mindset and stalling inflation would be the trigger for any expansion in quantitative easing.
Japan was mired in deflation for 15 years, and consumers became so accustomed to falling prices that central bankers placed a lot of emphasis on changing this mindset.
“I think what’s important is to ensure that inflation does not sharply exceed 2%, and to prevent deflationary mindset from heightening again,” he said.
Harada joins a board deeply divided between Kuroda and his two deputies, who are adamant about hitting the price target, and the six other members who are cautious of acting again just to accelerate inflation.
The government will have another chance to shift the board’s balance in favour of Kuroda when the term of Yoshihisa Morimoto, who voted against the October easing, expires in June.
Many market players expect the BoJ will ease again sometime during 2015, with some predicting action as early as April, when the BoJ issues new long-term price forecasts.
Harada said there could be limits to expanding the BoJ’s purchases of exchange-traded funds and real estate investment trusts, and indicated he would favour additional government debt purchases as a way to ease policy.
When Japan’s economy reaches full employment the jobless rate would be around 2.5%, Harada said. This is well below the current rate of 3.6%, which means he still sees some slack in the economy.



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