Sanjaya Panth, deputy director of the IMF’s Asia and Pacific Department, said the yen’s weakness this year was mainly driven by fundamental factors, particularly interest rate differentials. He expressed the opinion that the current yen trend does not require intervention. Although Japan’s inflation outlook is optimistic, Panth advises against an immediate short-term interest rate hike by the Bank of Japan, citing global demand uncertainty. Instead, he suggests the Bank of Japan focus on increasing the flexibility of long-term interest rates.
“For the yen, our feeling is that the exchange rate is driven mostly by fundamentals. As long as interest rate differentials persist, the yen will remain under pressure.”
Touching on the topic of currency intervention, Panth clarified the IMF’s position that intervention is only justified under certain scenarios, such as severe market dysfunction, heightened financial stability risks, or when inflation expectations are no longer anchored. He emphasized that it would be
Reflecting on the yen’s recent movements, he said, “I don’t think any of the three considerations exist at this point,” essentially suggesting that the yen’s current movements do not warrant intervention by the authorities. did.
Panth highlighted Japan’s economic outlook and shared a more optimistic tone regarding Japan’s near-term inflation. He said there is “more upside risk than downside risk” to Japan’s inflation forecast, as the economy is operating close to full capacity. Additionally, price increases in the Japanese market are primarily driven by strong demand.
However, Panth believes the Bank of Japan should refrain from raising short-term interest rates for the time being. He expressed concern about global demand trends and said the time was “not yet” to act given the potential impact on Japan’s export-heavy economy.
Governor Pance encouraged measures to increase the flexibility of long-term interest rates as a recommendation for the Bank of Japan’s continued strategy. This will allow the necessary financial tightening measures to be strategically taken in the future.
