• By
  • Eleanor Warnock

Countries around the world watched nervously when Prime Minister Shinzo Abe took power last December advocating a weaker currency to help lift growth. Leaders of other nations, especially Japan’s closest competitors, suspected Tokyo might be seeking an unfair trade advantage.

In a report published Thursday, the International Monetary Fund tries to put those fears to rest, saying that most of the effects of a weaker yen on the competitiveness of other nations would be offset if Mr. Abe successfully implements his pro-growth policies, known as Abenomics.

While a drop in the value of the yen makes Japanese goods such as televisions, cars and cameras cheaper overseas, the report says the impact of the lower prices on competition would be outweighed if Japan achieves stronger growth that boosts the global economy. That in turn would help smooth out any competitive differences, the report said. In addition, Mr. Abe’s policies could push more Japanese money into overseas assets and contribute to lower borrowing costs.

Some countries, especially in Asia, could even directly benefit from a weaker yen. The IMF report notes that countries, including Thailand, Taiwan and South Korea, rely on imported parts from Japan when manufacturing goods such as motor vehicles and machinery. Being able to buy those imported parts from Japan more cheaply could help those nations keep down their final export prices.

Furthermore, firmer Japanese demand would benefit major trading partners such as Australia, Indonesia, South Korea, China and New Zealand.

Rather than a weaker yen, the IMF flagged the possibility of Abenomics falling short in its goal of jump-starting the economy as the real risk. A failure to put Japan on a path to long-term growth and cut the nation’s debt could cause interest rates to spike and send ripples throughout the global financial system.

Follow Eleanor Warnock on Twitter @misssaxbyse

For the latest news and analysis,