KANAZAWA, ISHIKAWA PREF. – Bank of Japan board member Yutaka Harada said Wednesday that unemployment needs to fall further if the country’s stubbornly stagnant inflation rate is to pick up, while also advocating for continued monetary easing.
His comments, made in a speech to business leaders in Kanazawa, Ishikawa Prefecture, came after government data last week showed the nationwide jobless rate fell to 2.2 percent in May, its lowest level in a quarter of a century.
“One often hears the question of why prices are not rising even though the unemployment rate has fallen to around 2.5 percent, well below 3.5 percent, which until recently was widely regarded as the structural unemployment rate. My answer to this question is simple: the decline in the unemployment rate is insufficient,” he said.
“I do think that the current unemployment rate needs to fall further in order to achieve the price stability target of 2 percent,” Harada said, referring to the inflation target the BOJ has pursued since 2013 under Gov. Haruhiko Kuroda.
Core consumer prices, excluding volatile fresh food prices, rose a tepid 0.7 percent in May from a year earlier.
Harada, a former bureaucrat and private-sector economist who joined the central bank’s board in 2015, pushed back against comparisons that some economists have made between the BOJ’s prolonged monetary stimulus and a World War II battle in northeast India in which Japan suffered heavy losses after failing to mount a timely retreat.
“In contrast with such disastrous consequences, QQE (quantitative and qualitative easing) is clearly having a positive impact, with most economic indicators improving. Therefore, I think this analogy between QQE and the Japanese army’s Battle of Imphal is simply inaccurate.”
Harada warned that if the BOJ were to prematurely raise interest rates, it would spark a fall in bond and stock prices and an appreciation of the yen, hurting corporate profits. In that scenario, credit costs would rise, and commercial banks would suffer “substantial damage,” he said.
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