IMF says yen falls driven by fundamentals, urges BOJ to keep easy policy

The yen‘s recent declines are driven by fundamentals and would be no reason for Japan to change economic policy, including the central bank’s ultra-low interest rates, a senior International Monetary Fund (IMF) official said.

The remarks highlight the difficulty Tokyo may face if it sought international consent to intervene in the currency market to stem further yen falls, as G7 and G20 countries agree such action is justified only if exchange rates move out of line with fundamentals.

“What we‘re seeing so far on the yen is driven by fundamentals,” Sanjaya Panth, deputy director of the IMF’s Asia and Pacific Department, told Reuters late on Wednesday.

“Economic policymaking should continue to look at fundamentals. We don‘t see any reason to change economic policy because what’s happening right now reflects fundamentals.”

The yen has plunged to two-decade lows against the dollar, with the Bank of Japan (BOJ) continuing to defend its ultra-low rate policy in contrast with heightening chances of aggressive rate hikes by the U.S. Federal Reserve.

“We do not see disorderly market conditions right now in the foreign exchange market. Its been driven by fundamentals,” Panth said, when asked whether yen-buying currency intervention by Japanese authorities would be justified.

Markets are rife with speculation Japan may act to resist further yen declines, perhaps by buying yen, raising interest rates or tweaking the BOJs dovish 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 does affect households. It’s a little bit of a mixed bag,” he said in the interview.

With inflationary pressure still muted, there was no need for the BOJ to change its ultra-loose policy, Panth said.

While temporary factors, such as the dissipating effect of past cuts in cellphone fees, could push up headline consumer price inflation, Japan was unlikely to see inflation sustainably reach the BOJs 2% target in the near term, he added.

“Japan is in a very different situation compared with other advanced countries who have begun tightening monetary policy,” he said. “We do not see any need to change the accommodative monetary policy stance.”