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The IMF claims that the recent' significant' drop in the yen reflects fundamentals

Image: Reuters Berita 24 English -  A senior International Monetary Fund (IMF) official stated on Thursday that the yen's recent "...

Image: Reuters

Berita 24 English - A senior International Monetary Fund (IMF) official stated on Thursday that the yen's recent "significant" decline reflected fundamentals, such as market views of diverging monetary policy paths between Japan and the United States.

Ranil Salgado, the head of the IMF's Japan mission, stated that the yen's recent movements against the dollar were closely connected with Japan-U.S. interest rate disparities.

As a big importer of commodities, Japan must pay more dollars as a result of rising global raw material costs, he added, which weighed on the yen.

Salgado told an online conference, "We believe the swings of the yen reflect fundamentals." We observe both positive and negative repercussions from the weakening of the yen.

Salgado stated that a weak yen would benefit exporters and enable the Bank of Japan's (BOJ) 2 percent inflation aim by increasing import prices.

He noted that the weakening of the yen will harm importers and households by increasing the cost of living.

On Thursday, the yen fell to a new 20-year low of 134.56 per dollar, driven down by rising interest rates overseas at a time when the BOJ remained committed to maintaining highly stimulative policy.

Salgado stated that Japan faced some inflationary risks on the upside due to persistent increases in commodity prices and the effect of the yen's decline on import prices.

Nevertheless, a measure of inflation excluding the effect of food and energy prices remains below the BOJ's target, requiring the central bank to sustain the economy with ultra-easy policy, he stated.

Once cost-push factors go, "medium-term inflation will continue considerably below the BOJ's objective," Salgado said.

We believe it is prudent for the BOJ to maintain monetary easing until inflation is stabilized and sustained.

For the first time in seven years, Japan's core consumer prices surpassed the BOJ's 2 percent inflation goal in April, mostly due to rising fuel and food prices.

BOJ officials have frequently emphasized that this cost-push inflation is transient and would not result in a tightening of monetary policy.

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