David Lipton, the first deputy managing director of the IMF, said the yen's current depreciation is not problematic if accompanied by fiscal and structural reforms Prime Minister Shinzo Abe has promised to deliver.

Lipton also said the yen and the current account balance should move to levels consistent with economic fundamentals as fiscal and structural reforms, which are part of a package dubbed "Abenomics," are put in place.

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Previously, the IMF had said that the yen was moderately overvalued. The change in tone shows that while the IMF now thinks that yen weakness has gone a little too far, it expects this trend to correct itself over time.

"We appreciate that the attempt to escape deflation has had an effect on the exchange rate and our assessment is right now that leaves the exchange rate moderately below what would be consistent with medium-term norms," Lipton said.

"But our judgment is that given the full 'Abenomics' plan...we would expect to see external balances and the real exchange rate adjust in an appropriate fashion."

Lipton was addressing a news conference after the IMF's annual consultations on Japan's economy and economic policies.

The IMF has said it fully backs "Abenomics," which combines aggressive monetary easing and fiscal stimulus with structural reforms, and has emphasized that the country must pursue steps to fix its public finances and to carry out structural reforms.

Data earlier on Friday showed Japan's factory output picked up in April and deflation abated slightly as a weaker yen and firmer overseas demand boosted growth, boding well Abe's efforts to shake the world's third-largest economy out of nearly two decades of stagnation.

However, with core consumer prices continuing to fall and manufacturers forecasting further weakness ahead, the data also underscored the challenges the Bank of Japan, under new Governor Haruhiko Kuroda, faces in meeting its 2-percent inflation target.

Abe's policies have driven the yen to a 4-1/2 year low against the dollar and boosted Tokyo shares by about 60 percent since November, when his election the following month looked assured.

Last year the IMF showed signs of understanding for Japan's battle with the yen's gains below 80 yen versus the dollar, saying that the currency was moderately overvalued and intervention was an option to ease volatility.

The BOJ unleashed the world's most intense burst of stimulus last month, promising to inject $1.4 trillion into the economy in less than two years to meet its pledge of achieving 2 percent inflation in roughly two years.

The central bank's strategy rests on buying around 7.5 trillion yen of long-term government bonds per month, roughly 70 percent of newly issued government debt.

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