Officials at the MOF will privately welcome overnight remarks by the International Monetary Fund claiming that the yen remains ‘moderately overvalued’. In separate comments, the IMF’s First Deputy Managing Director David Lipton also opined that intervention could be justified in a disorderly market, helping to assuage some of the criticism levelled at the BOJ for their multiple forays last year. In their December report, the US Treasury Department singled out Japan for their currency conduct in 2011 during what they described as ‘orderly’ markets.
Lipton also suggested that the BOJ should contemplate further monetary policy easing at their next meeting, which commences on Thursday (with an announcement on Friday). The BOJ has been criticised domestically for failing to do enough to support the recovery, despite raising asset purchases by JPY 20 trln (around USD 250 bn) back in April. That said, with the deteriorating international environment and expensive currency both weighing on demand for exports, the BOJ is surely examining its options. It may just be that the Japanese central bank will delay any additional steps until the next meeting, awaiting updated inflation and growth forecasts. Even so, the BOJ will recognise that previous attempts at firing up the economy have achieved very little, and that they have utilised virtually all of their firepower. In recent weeks, for instance, bond buying under the asset purchases program has fallen short because of a lack of supply.
Just like many major central banks are discovering these days, the BOJ has also been rendered impotent against the backdrop of these enormously challenging economic and financial circumstances.