David Lipton, the first deputy managing director of the IMF, told
Reuters in an interview that the Fund's main concern is whether
Japan could forcefully implement structural reforms to shore up its
sliding potential growth and export competitiveness.
Lipton was in Tokyo for consultations with Japanese officials ahead
of the release of the IMF's annual report on the world's
"If anything, we've been seeing Japan experiencing slower export
growth than Japan had expected and we had expected," Lipton told
"There's a need for Japan to strengthen its competitiveness. So we
don't believe that strengthening of the yen at this point would be
helpful because that would go in an opposite direction from that
The principle pathway for improving Japan's competitiveness isn't
about the currency but the so-called "Third Arrow of Abenomics", he
added, referring to the third phase of Prime Minister Shinzo Abe's
economic turnaround plan.
Abe is expected to outline his plans for deeper reforms and
deregulation in a speech in June, but skeptics note that details so
far have been scant. He faces powerful opposition from both major
business lobbies and within his own party.
The two earlier "arrows" came in forms of aggressive monetary easing
and massive public spending aimed at ending years of vigor-sapping
The Bank of Japan unleashed an intense burst of monetary stimulus in
April 2013 to end nearly two decades of economic stagnation.
Washington has cautioned Tokyo against using the stimulus, which has
put downward pressure on the value of the yen, to support exports.
Previously, the IMF had said since last year that the yen was
slightly undervalued against Japan's medium- to long-term economic
fundamentals, suggesting that while yen weakness had gone a little
too far, it saw this trend correcting itself over time.
The BOJ has begun shifting its focus from supporting growth to ways
of phasing out its massive stimulus, a centerpiece of Prime Minister
Shinzo Abe's campaign to end two decades of deflation and fitful
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But Lipton said the BOJ's current policy is appropriate and he saw
no need for the bank to prepare an exit or ease policy more
forcefully, although it should remain vigilant against risks such as
return of deflation.
On the contrary, Reuters reported earlier this month that the
European Central Bank is preparing a package of options for its June
5 policy meeting, including cuts in all its interest rates,
including a negative deposit rate.
While the ECB has grown increasingly concerned about the strength of
the euro and its impact on already sluggish prices, Lipton urged the
bank to focus on escaping low inflation trap, adding that any
weakening of the euro as by-product would be temporary.
"Low inflation risk is becoming entrenched in Europe the way it
entrenched in Japan ... What it makes sense for ECB to do is very
simple, they have only one mandate - to achieve their price,
inflation target," Lipton said.
"We'll see what steps they actually take. They need to in the
upcoming meeting and subsequent meetings, they need to keep their
eye on fulfilling their mandate."
(Additional reporting by Yoshifumi Takemoto; Editing by Tomasz
Janowski and Edmund Klamann)[© 2014 Thomson Reuters. All rights
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