Japan's controversial policy of intervening heavily in the currency market has helped the economy and been useful in fighting deflation, the head of the International Monetary Fund (IMF) said today.
However, this intervention - with the Bank of Japan buying dollars to slow a rise in the yen - should be seen as a temporary measure, IMF Managing Director Mr Horst Koehler said.
Speaking on a visit to Tokyo where he has met top government officials, Mr Koehler said Japan's intervention was appropriate, given the lack of other policy tools available to reflate the economy.
"It is pragmatic, and helps stabilise the financial system and battle deflation," he told a news conference.
"But I understand it is temporary, among limited options, and is not based on a fixed foreign exchange rate target."
Mr Koehler, who met with Finance Minister Mr Sadakazu Tanigaki among others yesterday, said he believed Tokyo's massive intervention was not aimed at boosting exports.
"My understanding, also confirmed in discussions with the finance minister, is that the option was taken because of the limited number of other options to avoid spiralling deflation, to secure the integrity of the financial system, and it worked," he said.
Tokyo sold a record 20 trillion yen ($185 billion) last year to curb the yen's rise and many analysts believe this was aimed at preserving the competitiveness of exporters, who have been the driving force behind Japan's economic recovery.