Rehn: Japan’s Actions ‘Understandable’ To Fight Deflation

Japan’s record monetary policy easing and the weakening yen make sense given the nation’s challenges of recession and deflation, European Union Economic and Monetary Affairs Commissioner Olli Rehn said today.

“I can well understand that Japan is taking very forcible policy action in this juncture,” Rehn said in a Bloomberg Television interview at International Monetary Fund meetings in Washington this week.

“Japan has to deal with a very serious problem of deflation,” Rehn said. “On the other hand, Japan needs also to build up a convincing strategy of long-term fiscal consolidation.”

The yen has fallen against all 16 of its most-traded peers since April 4 when the Bank of Japan surprised investors by doubling monthly bond purchases and setting a two-year horizon for achieving its goal of 2 percent inflation. The U.S. Treasury said this week it will press Japan to refrain from competitive devaluation, alongside calls from European governments that it not become too reliant on fiscal and monetary stimulus.

Rehn said Europe will continue to press ahead in tackling its own challenges, particularly “what can be done in order to tackle the excessively tight financing conditions, especially in Southern Europe.” He also said investors shouldn’t see Cyprus as a bellwether for bailouts in other nations.

Concerning gold sales, which are foreseen as part of Cypriot efforts to access its 10 billion-euro ($13.1 billion) rescue package, Rehn said it was a matter for central bankers to discuss. He said gold sales are “not a template” for bailouts in other nations, just as “Cyprus is not a template in general.”

The euro zone has faced a wide range of challenges in the nations that have sought aid, including Greece, Ireland, Portugal and Spain. “We’ve also had different and tailor-made solutions to these challenges,” Rehn said.