Japan has little to cheer about the weak yen, which reflects its deteriorating economic fundamentals and trade deficit, a former International Monetary Fund official, who was once the country’s former top currency policymaker, said.
Monetary policy is not the right tool to curb yen falls, Mitsuhiro Furusawa said, brushing aside speculation that recent yen declines might prompt the central bank to raise interest rates.
Furusawa oversaw the country’s currency policy in 2013-2014, when the Bank of Japan (BoJ) “bazooka” stimulus pushed down the yen and bolstered shares.
“It’s not good if the value of a country’s currency keeps sliding,” Furusawa said on Thursday, describing the weak-yen trend as reflecting Japan’s waning competitiveness.
His remarks point to changes in how Tokyo policymakers see a weak yen – once welcomed as giving Japan’s export-reliant economy a boost.
“Responding to a weak yen with monetary policy isn’t right,” he said, adding that the BoJ would keep interest rates ultra-low to ensure inflation sustainably hits its 2% target.
The yen’s real, effective exchange rate – an indicator that captures the international competitiveness of a currency – has slid to less than half the peak level of 150 hit in 1995.
Currency Hits Six-Year Low
The Japanese currency has lost about 8% against the dollar in March, dropping to a six-year low below 125 on Monday.
Furusawa, also a former finance minister, served as deputy managing director of the IMF until 2021. He is currently president of the Institute for Global Financial Affairs at megabank SMBC.
Some market players see 125 yen to the dollar as a level that raises alarm among Japanese authorities, as a previous drop to that level triggered verbal warnings by Haruhiko Kuroda, the central bank governor.
But Furusawa said the speed of yen moves, rather than the currency’s level, were more important for policymakers in deciding whether to intervene in the market.
The dollar’s spike to 125 yen on Monday was “quite big,” which is why incumbent currency chief Masato Kanda toned up his warning the following day, Furusawa said.
“It’s meaningless to set a certain line-in-the-sand for currency levels,” said Furusawa, who retains close contact with overseas and incumbent Japanese policymakers.
- Reuters, with additional editing by George Russell