[Asia Economy Reporter Park Byung-hee] A senior official from the International Monetary Fund (IMF) advised that the Bank of Japan (BOJ), Japan's central bank, should maintain its accommodative monetary policy stance despite the weak yen.
According to major foreign media on the 20th (local time), Sanjaya Panth, IMF Deputy Director for Asia and the Pacific, stated that the yen's weakness reflects Japan's economic fundamentals. Since the yen is weak due to Japan's economic sluggishness, the BOJ should continue its efforts to stimulate the economy.
Foreign media assessed that Deputy Director Panth's remarks make it difficult for Japan to intervene in the foreign exchange market to prevent the yen's depreciation. The reason is that the international community, including the Group of Seven (G7) and Group of Twenty (G20), justifies foreign exchange market interventions only when exchange rates move independently of economic fundamentals. If Japan intervenes in the foreign exchange market to stop the yen's decline, it would lack legitimacy and could face criticism from the international community.
When asked whether Japan's foreign exchange market intervention could be justified, Deputy Director Panth emphasized again, "The foreign exchange market does not appear disorderly" and "It is moving according to fundamentals."
He also said, "Economic policy decisions should be based on fundamentals," adding, "Since the current yen weakness reflects fundamentals, there is no reason to change economic policy."
The yen has been declining continuously, reaching its lowest value against the dollar since 2002. As a result, market expectations are spreading that the BOJ will take measures to prevent the yen's decline, such as buying yen, raising the benchmark interest rate, or changing monetary policy.
Deputy Director Panth reiterated that "Japan's situation is very different from other advanced countries that have already started tightening policies," emphasizing that the BOJ does not need to change its monetary policy direction.
He explained that Japan's low inflationary pressure also indicates that the BOJ does not need to alter its monetary policy. Deputy Director Panth said, "Japan can temporarily raise the consumer price index through temporary measures such as past reductions in mobile phone charges, but Japan's consumer prices are unlikely to sustain the BOJ's monetary policy target of 2%."
He also mentioned that past yen weakness positively impacted the export expansion of major Japanese companies, describing the yen's weakness as a double-edged sword for Japan.
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