No reasons for Japan to intervene in currency market, IMF says

The International Monetary Fund (IMF) said that there are no reasons that would drive Japan to interfere in the foreign exchange market to boost the yen.

“We don’t see any constraints,” Sanjaya Panth, deputy director of the IMF’s Asia and Pacific Department, told reporters Saturday in Marrakech, Morocco, during the annual meeting of the IMF and World Bank.

Panth warned that he was not speaking for Japanese officials, who “may know things I don’t” about the issue.

According to Panth, the yen’s devaluation has been driven mostly by interest rate differentials, reflecting economic fundamentals as inflation rises abroad while the Bank of Japan maintains its ultra-easy policies in order to produce stable inflation.

“The IMF does not see essential elements that would justify the necessity for intervention, such as market dysfunction, financial stability threats, or de-anchoring of inflation expectations,” Panth added.

The question of whether Japan will intervene to strengthen the yen has been a hot topic recently, with the currency hovering around 150 per dollar.

Panth’s comments came a day after Japan’s top currency official issued a warning to traders, clearly implying that the yen may be intervened in by a group of 20 peers if it swings unduly.

The IMF official avoided anticipating the end of negative interest rates and yield curve management.

According to Panth, Japan faces both positive and negative risks, ranging from inflation forecasts to the global economy’s outlook.

BOJ watchers are looking for hints as to whether the bank will change its policy on October 31, when inflation is largely predicted to improve. Concerns about inflationary pressures have developed in global financial markets in the aftermath of Israel’s battle with Hamas, which has been viewed as a possible danger to oil prices if the conflict continues throughout the region.

“We’re still talking about two or three weeks; there’s a lot going on in the world,” Panth remarked of the next BOJ meeting.

“I’m not going to attempt to forecast what the Japanese authorities will do, other than to say that I’m convinced they’ll look at it very thoroughly and make the appropriate decision,” he said.

Some analysts are now paying closer attention to the IMF’s assessment of BOJ policies. IMF Chief Economist Pierre-Olivier Gourinchas warned in July that the BOJ should abandon yield curve management a few days before Governor Kazuo Ueda’s first surprising action.