The yen may continue to decline

International Monetary Fund (IMF) officials said the yen could depreciate further, as the currency weakens due to negative interest rate policies.

"Regarding the yen, our view is that the exchange rate is being influenced by fundamental factors. As long as interest rates remain differential, the yen will face downward pressure," Sanjaya Panth - Deputy Director in charge of Asia-Pacific region at the IMF said on October 14.

Japanese officials are facing new pressure to prevent the yen from falling further. Investors are currently betting that interest rates in the US will stay high for a long time, while Japan still maintains a negative interest rate policy.

However, the IMF believes that intervention is only reasonable when there are serious market abnormalities, increased risks of financial instability, or sudden changes in inflation forecasts. "I don't think these three cases exist," he said when asked whether the yen's recent decline had prompted authorities to intervene.

Yen has continuously weakened against the USD since the beginning of this year. Graph: Reuters

Last September and October, Japan bought yen to support local currency prices. At that time, the yen fell to its lowest level in 32 years compared to the USD, reaching 151.9 yen per US dollar. This is the first time they intervened in the market since 1998.

On October 13, one US dollar was exchanged for 149.5 yen. The Bank of Japan (BOJ) has so far kept short-term interest rates at -0.1%, despite the wave of interest rate increases around the world and inflation has been above the target of 2% for more than a year.

Governor Kazuo Ueda said they still need to keep interest rates super low until inflation remains at current levels, thanks to strong demand and steady wage increases.

Panth believes that inflation in Japan will accelerate in the short term. However, he commented that "now is not the time" for the BOJ to raise short-term interest rates. The reason is that officials have not yet assessed how the decline in global demand will affect the Japanese economy.