The yen may fall further.

The yen could depreciate further, as the currency weakens due to negative interest rates, an International Monetary Fund (IMF) official said.

"On the yen, our view is that the exchange rate is being driven by fundamentals. As long as the interest rate differential remains, the yen will face downward pressure," Sanjaya Panth, deputy director of the Asia-Pacific department at the IMF, said on October 14.

Japanese authorities are facing renewed pressure to prevent the yen from falling further. Investors are betting that U.S. interest rates will stay high for longer, while Japan maintains a negative interest rate policy.

However, the IMF said intervention would only be justified if there were serious market disruptions, heightened risks of financial instability, or sudden changes in inflation forecasts. "I don't think these three circumstances exist," he said when asked whether the recent decline in the yen would warrant intervention.

Yen has been weakening against the USD since the beginning of this year. Chart: Reuters

Japan bought yen to support its currency in September and October last year, when the yen fell to a 32-year low of 151.9 yen to the dollar. It was the first time it had intervened in the market since 1998.

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

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

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

Ha Thu (according to Reuters)

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