TOKYO (MNI) – The yen’s foreign exchange rates still reflect
Japan’s economic fundamentals from longer-term perspectives, although
the yen’s surge to 15-year highs against the dollar last year hurt
exports and dented business sentiment, a senior IMF official said on
Wednesday.

International Monetary Fund Deputy Managing Director Naoyuki
Shinohara also told reporters that he does not think Japan’s long-term
interest rates are rising too fast despite the recent decision by the
U.S. ratings agency Standard and Poor’s to downgrade Japan’s long-term
sovereign credit rating.

The yen has appreciated against major currencies in the past year,
having some impact on Japanese exports, he said.

“But when we look at foreign exchange markets, we argue whether the
current levels are consistent with medium-term fundamentals, and not
form short-term perspectives,” said Shinohara, who was Japan’s
vice finance minister for international affairs from 2007 to 2009.

“Our view that the current yen exchange rate levels in a range that
is largely consistent with medium-term fundamentals has not changed.”

Earlier on Wednesday, Shinohara told an IMF seminar here that
Japanese banks are “facing a number of external downside risks,” urging
them to further increase their capital buffers.

“The IMF’s main scenario calls for a steady global economic
recovery but downside risks are still larger than upside risks,” he told
reporters, adding the IMF is not being either optimistic or pessimistic.

He urged the Japanese government to implement long-term fiscal
consolidation, noting that the public-sector debt is too large to be
sustainable.

“But I don’t think Japan’s current fiscal deficit or outstanding
debt will be punished by markets immediately,” he said. “That’s because
Japan’s savings rate is high, most of Japan’s debt is absorbed by
domestic investors and it is a capital exporting country.”

Shinohara also called for raising Japan’s potential growth rate
through structural reform, warning that a drastic cut in the fiscal
deficit would hurt the economy in the short term.

In reviewing the basket of units comprising the Special Drawing
Rights, IMF member countries agree that the yuan is not yet a freely
usable currency to be considered a candidate for an SDR unit, he said.

tokyo@marketnews.com
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