Dissenter Who Saw BOJ 2000 Misstep Warns Fed Not to Raise Rates

  • Nakahara says Fed Board risks repeating Japan's mistakes
  • Fed should wait for steady wage rise before acting, he says

Nobuyuki Nakahara, who as a Bank of Japan board member voted against interest-rate increases in the early 2000s, said the U.S. Federal Reserve is at a risk of repeating Japan’s mistakes if it raises rates too soon.

Nakahara dissented when the BOJ ended its zero-rates policy in August 2000 and, three months later, called on the central bank to adopt quantitative easing immediately. As economic conditions deteriorated in Japan and abroad, the BOJ abandoned its tightening policy and began a quantitative easing campaign in March 2001. This lasted until 2006.

“I have no doubt they will end up repeating the same mistake as the BOJ if they raise the rate,” Nakahara said of the Federal Reserve in an interview on Oct. 16 in Tokyo. The Fed should wait until it sees a steady increase in real wages before any increase, Nakahara said.

“Ending QE3 was good enough for the Fed. It can’t go further than that,” said Nakahara, who was on the BOJ from 1998 to 2002 and is now part of an informal group of economists consulted by Prime Minister Shinzo Abe on monetary policy.

The U.S. should raise interest rates this year so long as the economy stays on track, Federal Reserve Bank of New York President William C. Dudleysaid last week while Fed governors Lael Brainard and Daniel Tarullo said they favored patience on the timing of the first rate increase since 2006.

The Federal Open Market Committee is scheduled to meet on Oct. 27-28.

Nakahara said he also thinks the BOJ can hold off from bolstering stimulus at its meeting later this month, citing stability in the foreign exchange market.

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