May 12, 2017 / 9:14 AM / 2 months ago

BOJ board member Harada warns against premature exit from stimulus

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Yutaka Harada leaves a news conference at the BOJ headquarters in Tokyo March 26, 2015.Yuya Shino

TOKYO (Reuters) - Bank of Japan board member Yutaka Harada said on Friday the central bank must be "very careful" about exiting from its ultra-loose monetary policy, warning of the dangers of jumping on what could be temporary improvements in the job market.

Harada, who is among the strongest advocates of aggressive monetary easing in the BOJ's nine-member board, brushed aside criticism that prolonged, unconventional stimulus steps could distort financial markets and hurt Japan's banking industry.

"There might be a cost of delaying an exit. At the same time, there is a cost for an urgent exit" from ultra-loose monetary policy, Harada said in a seminar.

The remarks came after BOJ Governor Haruhiko Kuroda told parliament on Wednesday that the central bank will consider publicizing calculations on how a future withdrawal of stimulus could affect the central bank's financial health.

It was the first time that Kuroda, who until now had shrugged off as premature any debate over an exit strategy for the BOJ's radical stimulus program, has signaled the chance of offering such information to the public.

Harada said policymakers must take time gauging the price trend because inflation rates fluctuate on various factors, including temporary shocks such as a plunge in energy costs.

Tough to Understand

There is also uncertainty on how job growth could affect inflation, because price gains have failed to accelerate even as Japan's jobless rate hit 2.8 percent in March - a level considered as near full employment, he said.

"It's difficult to understand the basic trend of inflation rates," Harada said, adding the BOJ cannot say it will withdraw stimulus just because inflation accelerated to a certain pace.

"We have to be very cautious about an exit now."

With inflation stubbornly stuck around zero percent, BOJ officials have stressed that any exit from massive monetary support would be some time away.

But many market participants expect the BOJ's next move to be a withdrawal, not an expansion, of stimulus as the economy shows signs of strength, thanks to a rebound in global demand.

Masayoshi Amamiya, the BOJ's executive director overseeing monetary policy, said earlier on Friday that the central bank has "sufficient methods and tools" to engineer a smooth exit from its monetary stimulus program.

After more than three years of aggressive asset purchases failed to speed inflation to its 2 percent target, the BOJ revamped its policy framework in September to one targeting interest rates instead of the pace of money printing.

Editing by Richard Borsuk

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