Compelling Headline: IMF Advocates for Weak Yen to Boost Japan's Export Growth

The International Monetary Fund (IMF) has recognized the weakening Japanese economy as a positive development, emphasizing the benefits the weaker currency brings to the country's exports. Nada Choueiri, IMF's mission chief for Japan, highlighted that the advantages from increased export revenues outweigh the high import costs associated with a weak yen. This assessment was shared in an interview on Friday.

As an export-driven economy, Japan sees that a lower yen generally stimulates economic growth. Choueiri indicated that Japanese officials are committed to maintaining a flexible exchange rate regime, suggesting that Japan is in no rush to intervene in currency markets despite recent declines of the yen against the dollar. These declines stem from expectations of interest rate differentials between the U.S. and Japan, raising concerns among Japanese officials about the impact on households and retailers due to expensive imports.

Regarding monetary policy, Choueiri advised the Bank of Japan (BOJ) to be cautious and methodical when adjusting interest rates, considering the balanced risks to inflation and the high degree of uncertainty in economic forecasts. She advocated for a data-driven approach and a gradual method in policy rate hikes.

At next week's two-day policy meeting, the BOJ is expected to maintain its short-term policy rate at 0.25%. The central bank's projections indicate that inflation will stabilize around 2% by March 2027. Having ended its negative interest rate policy in March and raised rates in July, the BOJ has noted progress towards achieving its inflation target sustainably.

BOJ Governor Kazuo Ueda stated that the central bank will continue to raise rates in line with economic forecasts but will carefully consider global uncertainties, such as the economic outlook of the U.S., when deciding the timing of the next rate increase.