Kuroda Ally at BOJ Says Excess Yen Strength Now Corrected

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Yutaka Harada
Bank of Japan Policy Board Member Yutaka Harada. Photographer: Kiyoshi Ota/Bloomberg

The excessive strength in the yen that damaged Japanese manufacturing in recent years has now been corrected, according to an ally of Bank of Japan Governor Haruhiko Kuroda.

“The abnormally strong yen has been corrected,” said Yutaka Harada, who joined the central bank’s policy board in March. The currency “may have come to a very good place,” Harada, 64, said in an interview on Thursday in Tokyo.

Harada’s remarks underscore that Japanese policy makers aren’t seeking further declines in the currency, which on a trade-weighted basis is now back where it was before the Lehman Brothers meltdown of September 2008. Since reaching a postwar high of 75.35 in 2011, the yen has fallen 40 percent, aided by unprecedented monetary easing that Kuroda’s using to reflate the world’s third-biggest economy.

“Harada’s comments indicate that the BOJ sees no need for additional easing anytime soon,” said Kazuhiko Ogata, an economist at Credit Agricole SA. “The government has become increasingly aware of the negative effects of the weak yen on households and small companies, and that’s something the BOJ can’t ignore.”

The former economics professor said inflation might not accelerate quickly enough to reach the BOJ’s 2 percent goal within the latest time frame. Even so, policy makers may not have to boost stimulus while prices are on track for the target, along with gains in employment and wages, he said in his first interview since joining the board on March 26.

Monetary Reflationist

Harada is closely allied with fellow monetary-expansion advocates whose influence surged when Prime Minister Shinzo Abe took office in December 2012. After blaming poor BOJ policy before Kuroda for contributing to Japan’s decades of stagnation, in 2013 he co-edited a book on reflationary measures to revive the economy along with Kikuo Iwata, a current BOJ deputy governor who advocated doubling the monetary base, and Abe adviser Koichi Hamada.

The yen strengthened against the dollar after Harada’s remarks, touching 123.98. It traded at 124.16 at 5:14 p.m. in Tokyo.

Harada succeeded a board member who in October voted with Kuroda to boost unprecedented monetary stimulus. He said in March he didn’t have differences with Kuroda on the BOJ’s goal and that there “will be a lot of points we agree on.”

Inflation Target

Since October, the BOJ has refrained from further easing, even as the tumble in oil has pushed its main inflation gauge to zero.

The central bank in April pushed back its time frame for reaching the goal to around the six months through September 2016, stretching well beyond the period of “about two years” that Kuroda pledged when he introduced the asset-purchase plan in April 2013.

Kuroda has warned of a temporary price drop due to cheaper oil. The governor said last month he sees consumer price gains accelerating later this year, as lower energy prices help to fuel growth.

The governor is counting on Japan’s increasing labor shortage to prompt more companies to boost wages, stoking consumer spending and fueling inflation expectations.

Weak Yen

The yen’s declines have aided the Japanese economy, Harada said. A weak currency helps Japanese exporters’ profits and shipments, and is good for jobs. It’s also good for domestic companies that compete with imports, Harada said.

“Of course, import prices are rising and this cuts into consumer sentiment, and there is a discussion that this isn’t good, but overall, the positives outweigh the minuses,” he said.

Wages in Japan need to rise at a 3 percent annual pace to achieve stable 2 percent inflation, Harada said. Such wage gains would reflect a 2 percent increase in the cost of living and a 1 percent gain in labor productivity, he said.

Before taking up a post at Waseda University in 2012, Harada was chief economist at Daiwa Institute of Research. Prior to that he did a stint at the Economic Planning Agency, a predecessor of the Cabinet Office, and also worked for a think tank linked to the Ministry of Finance.

Writing Master

Harada was instrumental in rallying opposition to former Governor Masaaki Shirakawa with a paper in 2009 that showed the BOJ’s monetary easing falling behind central banks in the U.S., Europe, the U.K. and China, according to Yuji Shimanaka, an economist at Mitsubishi UFJ Morgan Stanley Securities Co.

“It was a home-run,” said Shimanaka. “He showed to the world how small Japan’s monetary base was, changing the way people looked at the central bank.”

He’s known as a “wordsmith” among Japan’s reflationists, according to Shimanaka.

Harada took center stage in a debate over BOJ policy last month in Tokyo, defending its stance in front of hundreds of participants at a symposium held by the Japan Society of Monetary Economics.

Parliament last month approved Abe’s pick to fill a second opening on the BOJ board this year. Yukitoshi Funo, a veteran executive of Toyota Motor Corp., joins on July 1.

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