IMF Says Yen Falls Driven by Fundamentals, Urges BOJ to Keep Simple Policy

© . FILE PHOTO: US dollar and Japanese yen notes are featured in this photo illustration June 2, 2017. REUTERS/Thomas White/Illustration/File photo by Leika Kihara TOKYO () – The yen’s recent declines have been driven by fundamental factors and should No reason for Japan to change its economic policy, including the ultra-low central bank interest rates, said a senior International Monetary Fund (IMF) official. The comments highlight the difficulty Tokyo could face as it seeks international permission to intervene in the foreign exchange market to avert further declines in the yen, as the G7 and G20 countries agree that such action would only justified if exchange rates are out of step with fundamentals. “What we see on the yen so far is determined by fundamental factors,” Sanjaya Panth, deputy director of the IMF’s Asia-Pacific division, told late Wednesday. “Economic policy making must continue to look at the fundamentals. We see no reason to change economic policy, because what is happening now reflects the fundamentals.” The yen has fallen to a two-decade low against the dollar, with the Bank of Japan (BOJ) continuing to defend its ultra-low rate policy while increasing the likelihood of aggressive rate hikes by the US Federal Reserve. “We don’t see any disorderly market conditions in the foreign exchange market at the moment. It is driven by fundamentals,” Panth said, when asked whether buying yen currency by the Japanese authorities would be justified. Markets are rife with speculation Japan could act to resist further declines in the yen, perhaps by buying yen, raising interest rates or adjusting the BOJ’s lenient guidance on the future path of monetary policy. “As you know, a weak yen hasn’t been bad for Japan,” Panth said. “At the same time, it affects households. It’s a bit of a mixed bag,” he said in the interview. With inflationary pressures still subdued, there was no need for the BOJ to change its ultra-accommodative policy, Panth said. While temporary factors, such as the fading effect of past cuts in mobile phone tariffs, could push aggregate consumer price inflation up, Japan was unlikely to see inflation sustainably reach the BOJ’s 2% target in the near term, he added. ready. “Japan is in a very different situation compared to other advanced countries that have started tightening monetary policy,” he said. “We see no need to change the accommodative monetary policy stance.”

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