IMF’s Japan report sees yen at fair value but warns on reforms


The International Monetary Fund said in a report released Thursday that the yen is currently at fair values against the other major currencies.

The yen is assessed “as broadly consistent with medium-term fundamentals,” the Washington-based lender said in its annual assessment of the Japanese economy.

The IMF released the report after the Executive Board concluded its annual consultations with Japan last week following discussions in Tokyo in May.

No further monetary easing is needed at this stage but the Bank of Japan “will need to act swiftly to scale up asset purchases” if the growth weakens or prices fall, the IMF said.

“The effectiveness of additional easing by the BOJ, however, depends on fully launching” measures aimed at restoring the country’s fiscal health and getting Japan’s growth back on track, the IMF said in a likely reference to Abe’s structural reform promises and the second stage of the consumption tax hike.

Without implementation of such measures, “monetary policy may become overburdened, the yen may weaken unduly, and financial instability risks may emerge,” it said.

The IMF warned that growth expectations could falter and that concerns about the health of the nation’s public finances could rise if Prime Minister Shinzo Abe’s economic measures, dubbed Abenomics, do not deliver on structural reform.

The IMF urged Abe’s government to secure funds to help sustain fiscal discipline if it follows through on plans to cut corporate taxes.

The corporate tax cut “should proceed in combination with measures to offset revenue losses and be consistent with plans to restore fiscal sustainability,” the report said.