For almost three decades, Japan was the place where money was nearly free. That era is coming to a close, and the IMF's second-in-command says the country is ready for it.
Dan Katz, the IMF's first deputy managing director, said: "The Bank of Japan has started to move out of its very low interest rate regime that was in place for almost three decades and normalize policy."
"Japan's recovery gives the central bank room to keep going," Katz said. "The BOJ should do what is needed to hit its inflation goal while still supporting growth," he added.
He also credited structural reforms from the Shinzo Abe years, saying they are just beginning to pay off. Katz called that shift a "very significant long-term transformation."
Katz made those comments Thursday in an interview from Cape Town with Bloomberg Television's Jennifer Zabasajja.
Katz's assessment points to a broader shift.
Among major currencies, the yen has fared the worst. It shed roughly 1.3% against the dollar since its Aug. 3 high. Around 3:17 p.m. in London, one dollar bought roughly 158.18 yen.
That slide is what pushed Washington and Tokyo to act. Last week, the two governments intervened jointly for the first time in 15 years, and Treasury Secretary Scott Bessent warned traders that Washington was ready to move again if needed.
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Bessent followed up on Aug. 4 with a post on X saying intervention alone was only a partial fix. He described the yen as facing a "substantial undervaluation."
When asked what the BOJ should do for the yen, Katz pointed to inflation. "Prices are still modestly above target," he said, and he expects the central bank to keep normalizing.
The BOJ has been raising rates from historically low levels, but the yen's persistent weakness has kept currency markets on edge. The joint U.S.-Japan intervention last week underscored how far the selloff had gone, and Bessent's warning left traders unsure how much more official support might come.
Beyond Japan, Katz had good news for the world economy. It has held up unexpectedly well despite geopolitical strain and supply-chain problems, helped by fast-moving technology like AI.
He described AI as a "significant force" driving global growth through investment.
The African continent, he said, is seeing "an enormous amount of financial innovation from new technologies and business models."
He also issued a warning. In the past, he said, countries "flipped between being surplus and deficit economies more regularly," but now those imbalances tend to stick around longer.
Big and lasting imbalances are dangerous, Katz said, because they can trigger sharp financial shocks that unwind in disorderly ways.
Japan's rate moves may sound distant, but they travel. A stronger yen changes the value of Japanese exports, and it changes the returns on any international fund that holds yen-based assets.
That makes the BOJ's next step your business, even if you never touch the yen. Katz expects a slow and careful climb, which is the calm version of this story.
The less calm version comes with his warning about imbalances. When countries run big trade surpluses or deficits for too long, the unwind can be sharp, and the shock rarely stays inside one country.
So the story for your money comes down to pace. AI-led growth and Japan's exit from cheap money are both working in favor of markets for now, and both look gradual.
The IMF's answer is steady policy adjustments that promote more balanced growth, and that is what decides whether the good stretch lasts.
For fund managers, the key variable is speed. A weaker yen has historically helped Japanese exporters by making their goods cheaper abroad, but it also raises costs for households and importers.
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