The International Monetary Fund downplayed the need for Japan to weaken its currency to boost economic growth and inflation, saying the yen’s moves have been orderly and that government intervention isn’t advised.
“We think that policy tools that are available — the three arrows, plus perhaps attention to the wage-setting process in Japan through some sort of income policy, would be the ways to go to help the economy attain higher growth and a target inflation rate,” Maurice Obstfeld, the fund’s chief economist, said in response to a question at a press conference Tuesday in Washington. “So we don’t view intervention as being a necessary or useful part of that package.”
Japanese Prime Minister Shinzo Abe came into office in December 2012 with a three-pronged policy plan for bold monetary easing, flexible fiscal policy and a growth strategy to encourage business investment that included corporate tax cuts. The IMF said last month that Japan should reload the “three arrows” of Abenomics to support higher wages and labor-market reforms.
Obstfeld said the IMF has observed some “some currency volatility” in recent weeks, “but we would not characterize conditions in the yen market as being disorderly conditions.”
Speaking more broadly, Obstfeld said “flexible exchange rates play a very useful role in promoting international adjustment in acting as a buffer when real shocks occur. So it’s not at all obvious that exchange-rate volatility per se is a bad thing.”
Group of 20 finance ministers and central bankers are scheduled to meet July 23-24 in Chengdu, China.
While trade tensions sometimes arise when currencies fluctuate, “overall, I wouldn’t see the G-20 embarking on a new Plaza Accord or some grand scheme of that sort, which would really force them to subjugate national monetary and fiscal policies to an exchange rate goal,” he said. “That’s something that’s simply not going to happen.”