A Weak Yen's Advantage for Japan's Economy

By Leika Kihara

WASHINGTON (Reuters) – A weak yen benefits Japan's economy as the increase in exports outweighs the higher costs of imports, according to Nada Choueiri, the International Monetary Fund's Japan mission chief.

> "Japan is a very outward-oriented economy, and a very open economy," Choueiri stated. Therefore, the advantages from rising exports caused by a weak yen surpass the costs from importing goods. "So, the yen depreciation on net benefits growth in Japan," she added in a recent interview.

Choueiri highlighted the Japanese authorities' commitment to maintaining a flexible exchange rate regime. In light of the recent decline of the yen against the dollar, which is attributed to the expected divergence in U.S.-Japan interest rates, there are concerns about rising import costs affecting households and retail sectors.

On the subject of monetary policy, she advised the Bank of Japan to proceed cautiously with potential interest rate hikes, citing balanced risks to inflation and significant uncertainties about future outlooks.

> "The first priority is to remain data-dependent, analyze all the incoming data, and to be very, very gradual in raising the policy rate," she said. However, she also noted that a trajectory towards rate increases is expected in the policy horizon.

The Bank of Japan is anticipated to maintain its short-term policy rate at 0.25% during the upcoming two-day policy meeting, while keeping its inflation forecast steady at around 2% through March 2027.

In March, the Bank concluded its negative rates policy and enacted a rate hike in July, considering the progress towards achieving the 2% inflation target sustainably. BOJ Governor Kazuo Ueda stated that the central bank would continue raising rates according to economic forecasts, but emphasized careful evaluation of global uncertainties before deciding on the timing of the next increase.