IMF sees recent yen falls as reflecting fundamentals

MARRAKESH, Morocco, March 14 (Reuters) – The recent yen depreciation is driven by fundamentals and does not meet any considerations that call for the authorities to intervene in currency markets, a senior International Monetary Fund (IMF) official said on Saturday. said.

“With respect to the yen, our feeling is that exchange rates are largely driven by fundamentals,” said Sanjaya Panth, deputy director of the IMF’s Asia and Pacific Department.“As long as interest rate differentials persist, the yen will remain under pressure.” he said. reporters.

Japanese authorities are facing new pressure to counter a persistently weak yen as the Bank of Japan clings to ultra-low interest rate policy while investors bet on a long-term rise in U.S. interest rates.

Pans said the IMF believes currency intervention is justified only in cases of severe market dysfunction, heightened financial stability risks, or unanchoring of inflation expectations.

Asked whether the recent depreciation of the yen required authorities to intervene in the foreign exchange market, he said: “I don’t think any of the three considerations exist at this point.”

Japan bought yen in September and October last year, aiming for the yen to appreciate for the first time since 1998 in a bid to halt a steep slide that ultimately pushed the currency to a 32-year low of 151.94 yen to the dollar. entered the market.

On Friday, the dollar stood at 149.57 yen.

The Bank of Japan is a dovish outlier in a wave of central bank interest rate hikes, even though cost-driven price increases have kept inflation above the 2% target for more than a year.

Bank of Japan Governor Kazuo Ueda has emphasized the need to maintain ultra-low interest rates until the inflation rate remains permanently around 2%, backed by strong demand and sustained wage increases.

Panth said there are more upside than downside risks to Japan’s near-term inflation outlook, with the economy operating at near full capacity and strong demand increasingly driving price increases. said.

However, he said it was still “not the right time” for the Bank of Japan to raise short-term interest rates, as it is unclear how the slowdown in global demand will affect Japan’s export-dependent economy.

In the meantime, the Bank of Japan should continue measures to allow more flexible fluctuations in long-term interest rates to lay the groundwork for eventual monetary tightening, he said.

The Bank of Japan has guided short-term interest rates to -0.1%. In addition, based on the Yield Curve Control (YCC) policy, the 10-year bond yield target has been set at 0%. The central bank lifted the de facto cap on yields in December and July last year, relaxing tight controls on long-term interest rates as rising inflation put upward pressure on yields.

“What we did in December and July to increase flexibility at the long end of the yield curve was a very step in the right direction,” Panth said.

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