The weakening yen benefits the Japanese economy.

Nada Choueiri, head of the International Monetary Fund (IMF) mission in Japan, commented that a weaker yen is beneficial to the country's economy because it has a more positive impact on exports than an increase in import costs.

The benefits from increased exports due to the weak yen have outweighed the costs of rising imports for Japan, a highly outward-oriented economy. (Source: Kyoto)

Ms. Choueiri recommended that the Bank of Japan (BoJ) should continue to exercise caution and should implement interest rate increases gradually, given the continued uncertainty surrounding inflation.

Recently, the Yen has continued to depreciate against the USD due to expectations that the interest rate differential between the US and Japan will remain high.

This has led the Japanese government to worry about the negative impact on households due to the increased cost of imports.

However, Ms. Choueiri argues that the benefits from increased exports due to the weak yen outweigh the increased import costs for Japan, a "very outward-oriented" economy. Therefore, the depreciation of the yen is fundamentally beneficial to the growth of the Land of the Rising Sun.

The decline of the domestic currency prompted Japanese Finance Minister Katsunobu Kato to warn that the recent "unilateral, rapid" fluctuations of the yen need to be "closely monitored".

After ending its 10-year economic stimulus program in March 2024, the Bank of Japan (BoJ) raised short-term interest rates by 0.25% in July 2024 and signaled it would continue to raise rates if the economy progresses well toward its sustainable 2% inflation target.

The IMF forecasts that Tokyo's inflation will sustainably reach 2%, driven by domestic demand, thus meeting the prerequisites for raising interest rates.

However, the BoJ needs to be cautious about raising interest rates due to various risks, such as the potential negative impact on exports from trade fragmentation, the possibility of weakening consumption and wage growth, and the impact of yen volatility on inflation.

In its World Economic Outlook report released this month, the IMF forecasts that Japan's economic growth will accelerate from 0.3% this year to 1.1% in 2025 as rising real wages boost consumption.

Japan's new Prime Minister, Shigeru Ishiba, has pledged to create a supplemental budget to fund another large-scale spending package following the general election on October 27.

Source: https://baoquocte.vn/dong-yen-suy-yeu-kinh-te-nhat-ban-thu-loi-291503.html