Nada Choueiri, the chief of the International Monetary Fund’s Japan mission, stated to Reuters on Friday that a weaker yen is advantageous for Japan’s economy, as the increase in exports surpasses the increase in import costs.
She stated that Japan is an economy that is highly open and outward-oriented, which means that the net benefit of a weaker yen from increased exports exceeds the rising costs of imports. Choueiri stated in an interview that the yen depreciation has a positive impact on Japan’s economic development.
When asked whether Tokyo’s intervention in the currency market would be justified by rapid yen movements, she stated, “It is crucial to acknowledge that the Japanese authorities are dedicated to a flexible exchange rate regime.”
Recently, the yen has resumed its declines against the dollar amid expectations that the U.S.-Japan interest rate divergence will persist. This has caused concern among Japanese authorities, who are concerned about the potential impact on households and retailers of increased import costs as a result of a weaker yen.
Regarding monetary policy, she advised the Bank of Japan to exercise caution when increasing interest rates, as the risks of inflation were evenly distributed and the outlook was fraught with uncertainty.
“The first priority is to remain data-dependent and analyze all the data that comes, and to be very, very gradual in the process of raising the policy rate,” said the representative.
“But we do see that the path will be towards rate increases over the policy horizon,” according to her.
It is widely anticipated that Japan’s central bank will maintain its short-term policy rate at 0.25% and maintain its inflation forecast of approximately 2% through March 2027 during a two-day policy meeting next week.
In March, it terminated its negative rates policy and implemented a rate hike in July, based on the belief that the nation was making strides toward its 2% inflation objective in a sustainable manner.
BOJ Governor Kazuo Ueda has stated that the central bank will continue to increase rates if the economy continues to move in accordance with its forecast. However, he has also emphasized the necessity of carefully evaluating global uncertainties, including the U.S. economic outlook, when determining the timing of the next rate hike.
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