Officials from the International Monetary Fund (IMF) believe the yen could depreciate further, as the currency weakens due to negative interest rate policies.
"Regarding the yen, our view is that the exchange rate is being driven by fundamental factors. As long as interest rates remain differential, the yen faces further downward pressure," Sanjaya Panth, Deputy Director for Asia- Pacific at the IMF, said on October 14.
Japanese officials are facing renewed pressure to prevent the yen from falling further. Investors are now betting on US interest rates remaining high for an extended period, while Japan continues to maintain its negative interest rate policy.
However, the IMF argues that intervention is only justified when there is serious market anomaly, a high risk of financial instability, or a sudden change in inflation forecasts. "I don't think any of those three scenarios exist," he said when asked whether the recent decline in the yen would warrant intervention from authorities.
The yen has been steadily weakening against the dollar since the beginning of this year. Chart: Reuters
Last September and October, Japan bought yen to support its currency. At that time, the yen fell to its lowest level in 32 years against the USD, to 151.9 yen per US dollar. This was the first time they had intervened in the market since 1998.
On October 13th, one US dollar was worth 149.5 yen. The Bank of Japan (BOJ) has so far kept short-term interest rates at -0.1%, despite a wave of interest rate hikes worldwide and inflation having been above its 2% target for over a year.
Governor Kazuo Ueda argued that they still need to keep interest rates ultra-low until inflation remains at its current level, thanks to strong demand and steady wage growth.
Panth believes inflation in Japan will accelerate in the short term. However, he stated that "now is not the time" for the BOJ to raise short-term interest rates. This is because officials have not yet assessed how the decline in global demand will affect the Japanese economy .
Ha Thu (according to Reuters)
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