WASHINGTON – Recent concerns about competitive currency devaluations are “overstated,” according to the International Monetary Fund.
The yen’s recent sharp fall has sparked concerns about competitive devaluations, the IMF said Thursday in a report on global prospects and policy challenges.
“Taking a broader perspective, however, such concerns seem overstated,” the global lender said, suggesting recent movements in foreign exchange rates reflect economic fundamentals and shifting risk perceptions in the financial markets.
The IMF said the yen’s recent weakness stems from promises for monetary easing by the Liberal Democratic Party-led government and the Bank of Japan, a rise in the country’s trade deficit and lower global risk-aversion following receding concerns about the fiscal problems in Europe and the United States.
The yen’s downswing also came after “a period where the exchange rate was assessed to be moderately overvalued,” the IMF noted, thus showing understanding of the LDP’s argument that the currency’s recent movements represent a correction to its previously excessive appreciation.
The report, presented to a meeting of Group of 20 finance ministers and central bank chiefs in Moscow on Feb. 15 and 16, says the BOJ’s agreement last month to introduce a 2 percent inflation target and make its asset purchase program open-ended are steps “in the right direction.”
But the IMF cautioned that “stronger commitment and more effective communication” are required for Japan to overcome its long-standing deflation.