By Leika Kihara
WASHINGTON (Reuters) -The International Monetary Fund said the yen’s recent declines, while “quite significant,” largely reflected the interest rate differential between Japan and the United States, suggesting the moves were largely in line with economic fundamentals.
A broad rally in the dollar, driven by declining market expectations of a near-term US rate cut, recently pushed the yen to a 34-year low, raising the possibility of currency intervention by Japanese authorities.
“The Japanese authorities are committed to a flexible exchange rate regime, which allows the exchange rate to act as a shock absorber and support the monetary policy objective of price stability, and help maintain an external position in line with fundamentals.” Krishna Srinivasan, director of the IMF’s Asia and Pacific department, said this during a briefing on Thursday.
The advanced economies of the Group of Seven (G7) also reaffirmed their commitment to a market-determined exchange rate in a statement by financial leaders issued on Wednesday, Srinivasan said.
“The yen has depreciated about 9% against the dollar so far this year, which is quite significant,” he said.
“Like other countries in the region, this largely reflects interest rate differentials, but we will continue to monitor the data,” he said, when asked whether the yen’s recent moves justify Tokyo’s intervention to slow the currency’s decline .
The yen has been falling since the Bank of Japan’s decision last month to end eight years of negative interest rates, as markets focused on dovish guidance that suggested borrowing costs would remain near zero for some time. will linger.
While a weak yen boosts exports, it has become a headache for Japanese policymakers because it inflates the cost of living for households by driving up import prices.
The United States, Japan and South Korea agreed on Wednesday to “close consultations” on currency markets during their first trilateral financial dialogue, acknowledging concerns expressed by Tokyo and Seoul over recent sharp declines in their currencies.
When asked about the decline in the South Korean won, Srinivasan said its recent volatility did not pose significant challenges to the economy due to the country’s improved current account balance and moderate inflation risk.
