WASHINGTON: The yen’s recent depreciation may hurt Japan’s economic outlook by driving up import prices and dampening personal consumption, International Monetary Fund economist Malhar Nabar warned Tuesday.
The yen’s depreciation “could hurt consumption and weigh on growth going forward,” Nabar said in an interview with Jiji Press, referring to the Japanese economy.
On the other hand, Nabar, who heads the World Economic Studies division in the IMF’s Research Department, said “a weaker yen is obviously favorable for exports.”
The overall impact of the weaker yen on the economic outlook will be determined by whether the positive effect of boosting exports will outweigh the negative effect of weighing down consumption, or the other way around, he said.
While the Bank of Japan has maintained its monetary easing policy, the U.S. Federal Reserve is prepared to raise interest rates aggressively to contain inflation that has hit a 40-year high.
The yen’s weakness against the dollar reflects an anticipation for wider interest rate differentials between Japan and the United States.
If U.S. inflation expectations increase and there are signs that those higher inflation expectations are feeding through to wages and to final prices, “there is a risk that the Federal Reserve will have to move even faster than what it is communicating right now,” Nabar said.