(Bloomberg) — The International Monetary Fund said it sees no factors that would force Japan to intervene in the foreign exchange market to support the yen.
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“We don’t see any conditions,” Sanjaya Panth, deputy director of the IMF’s Asia and Pacific department, told reporters on Saturday at the annual IMF-World Bank meeting in Marrakesh, Morocco. Pantha cautioned that he was not speaking on behalf of the Japanese authorities, who he said “may know things about the situation that I don’t know.”
Panth said the yen’s depreciation was mainly due to interest rate differentials, reflecting economic fundamentals as inflation rises elsewhere while the Bank of Japan sticks to its ultra-easy policy to generate stable inflation. He said the IMF did not see key criteria that would justify the need for intervention, namely market dysfunction, risks to financial stability or an unanchoring of inflation expectations.
Whether Japan will intervene to support the yen has been a key topic of late as the currency remains near 150 per dollar. Panth’s comments come a day after Japan’s top monetary official sent a warning to traders directly pointing to the possibility of intervention by Group of 20 counterparties if the yen moves excessively.
Read more: Japan’s finance chief warns of further weakening of the yen
The veteran IMF official refrained from predicting the timing of the end of negative interest rates and yield curve control. There are both upside and downside risks for Japan, ranging from inflation expectations to the global economic outlook, Panth said.
BOJ watchers are looking for clues as to whether the bank will adjust policy on Oct. 31 amid a widely expected improvement in the inflation outlook. Concerns about inflationary pressures have grown in global financial markets in the wake of the war between Israel and Hamas, seen as a potential threat to oil markets if the conflict spreads to the region.
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“We are still talking about two more weeks, three more weeks, there are a lot of things happening in the world,” Panth said ahead of the next BOJ meeting. “I won’t try to predict what the Japanese authorities will do, other than to say that I’m fairly confident that they will look at the matter very carefully and make the right decision.”
Some economists are now paying more attention to the IMF’s opinion on BOJ policy. In July, IMF chief economist Pierre-Olivier Gourinchas said the Bank of Japan (BOJ) should move away from yield curve control, days before the bank adjusted it in Governor Kazuo Ueda’s first surprise move.
The IMF this week raised its forecasts for price increases in Japan, predicting inflation in the world’s third-largest economy will be well above the BOJ’s 2 percent target next year. Japan’s main inflation indicator has been above the price target for 17 months. Since the last quarterly forecast report in July, the yen has weakened and oil prices have risen, raising market expectations for the central bank to raise its forecast again.
“There is much more scope in Japan now than there has been in a very, very long time for inflation to stay at 2% or for the 2% target to be met,” Panth said. “The likelihood of this has certainly increased much more than in the past.”
The IMF now expects consumer prices in Japan to rise 3.2% this year and 2.9% in 2024, compared with forecasts of 2.7% and 2.2%, respectively, in April.
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