Unlike the International Monetary Fund, William Schrade (in his Aug. 22 letter, "Japan exporting unemployment") believes that a stronger yen and higher interest rates would boost economic growth and inflation in Japan while giving a break to besieged U.S. and European industries. In his view, current macroeconomic settings amount to beggar-thy-neighbor policies that export domestic unemployment.
Considering that global growth over the last several years has been exceptionally strong -- and seemingly unaffected by the weak yen -- we at the IMF disagree. In fact, a monetary tightening in Japan right now would put the expansion at risk and create adverse international spillovers. The world has a huge stake in seeing Japan on a solid growth trajectory with stable prices. With budgetary consolidation badly needed to prepare for the country's rapidly aging society, continued monetary support in the current circumstances is key to this goal.
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