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

© Reuters. FILE PHOTO: U.S. dollar and Japan yen notes are seen in this photo illustration June 2, 2017. REUTERS/Thomas White/Illustration/File Photo

By Leika Kihara

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

The currency 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.

“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.”

When asked whether yen-buying currency intervention by Japanese authorities would be justified, Panth said the current policy stance was appropriate as conditions in the foreign exchange market were not disorderly.

Once welcomed for the boost it gives to exports, a weak yen has emerged as a source of concern for Japanese policymakers as it inflates the already rising cost of importing food and fuel.

Markets are rife with speculation Japan may act to combat further yen declines, such as by conducting yen-buying currency intervention, raise interest rates or tweak the BOJ’s 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 inflation pressures still muted, there was no need for the BOJ to change its ultra-loose policy, Panth said.

“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.”

The BOJ is expected to raise this year’s inflation forecast but maintain its massive stimulus programme at its next policy meeting on April 27-28.