The yen fell against the US dollar and euro in Asian trade yesterday after a senior IMF official indicated that the fund tolerated Japan’s interventions in forex markets to quell volatility.
The comments by IMF first deputy managing director David Lipton came as it also said that the Bank of Japan’s asset purchase program could be “expanded substantially.”
In afternoon trade the US dollar was changing hands at ￥79.53 in Tokyo, compared with ￥79.43 in New York late on Monday and ￥79.33 earlier yesterday.
The euro rose to ￥99.32 from ￥99.13 in New York and ￥99.03 earlier in the day, while gaining to US$1.2483, well below Monday’s rally past the US$1.26 level, but up from US$1.2482 in New York.
Yesterday’s gains recovered some of the losses suffered in New York on Monday as earlier euphoria over Spain’s multi-billion-dollar bank bailout faded.
Lipton told reporters in Tokyo: “We see in the world volatile capital flows, where risk aversion and risk taking can create volatility. Certainly in that setting, intervention can be used to avoid disorderly markets.”
Japan has stepped into currency markets several times since September 2010, selling trillions of yen to tame the value of the unit which hit post-war highs of about ￥75 to the US dollar last year.
Japanese Finance Minister Jun Azumi has vowed further “decisive action” amid worries that the still strong yen was hurting exporters and damaging Japan’s post-quake economic recovery.
Also yesterday, the IMF said Japan could go further with easing measures, including expanding its ￥70 trillion asset-purchase program.
“Notwithstanding the current difficult environment for designing and implementing monetary policy, IMF staff believe that additional effective easing can be delivered,” it said in a statement following annual policy talks with Japanese officials.
The asset-purchase program “could be expanded substantially beyond current plans,” it added.
That raised expectations for additional easing measures by the central bank, a senior dealer at a major Japanese trust bank said.
“The market leaned towards a risk-on mood,” reversing the earlier risk aversion, Credit Agricole forex director Yuji Saito said.