WASHINGTON – Japanese authorities may intervene to calm volatility in the currency market although exchange rates should be determined by market forces, the International Monetary Fund said in a report released Wednesday.
In its annual staff report on Japan, the IMF advised the country to allow the market to determine the yen’s exchange rate, “although intervention could be used to counter volatile or disorderly market conditions.”
The comment suggests the Washington-based organization is not necessarily against market intervention if the yen rises sharply against the dollar and other major currencies.
IMF staff also shared Japan’s view that the yen is overvalued.
On fiscal reform, the IMF welcomed Japan’s plan to double the sales tax to 10 percent in two stages by 2015, but pressed for specific steps to reduce its debt beyond 2015 so it can put the massive public debt ratio firmly on a downward path.
“The authorities’ fiscal strategy recognizes the need for further adjustment but no concrete policy proposals, beyond current plans, have been put forward as yet,” the report said.
The IMF also urged the Bank of Japan to start more monetary easing to back economic recovery and emerge from deflation. “Notwithstanding the current difficult environment for designing and implementing monetary policy, additional effective easing could be delivered,” it said.
The report noted the BOJ’s asset purchasing program “could be expanded substantially” to increase the likelihood of achieving the 1 percent inflation goal by the end of 2014.
Beware uncertainty: BOJ
The sovereign debt crisis in Europe poses the biggest risk to the global economy and is creating the greatest “uncertainty” among overseas financial sectors, a Bank of Japan policymaker warned Thursday.
Yoshihisa Morimoto, a member of the central bank’s Policy Board, also told business leaders in Kanazawa, Ishikawa Prefecture, that it will still take “some time” before the eurozone’s fiscal and banking crisis is fully resolved.
“The European economy will remain sluggish for the time being,” he said, calling for greater “fiscal integration” in the region.