Japan monetary policy likely to win G20 understanding: FX chief

Japan's policy of boosting its economy with aggressive monetary stimulus is likely to win the understanding of major economies at their meeting in Washington next week, its newly appointed top financial diplomat said on Friday.

Mitsuhiro Furusawa, vice finance minister for international affairs, said renewed discussion of a potential "currency war" - which marred the last gathering of G20 finance chiefs in Moscow in February - was unlikely this time.

He reiterated that Japan's policy, which has raised concerns in neighboring South Korea because it has weakened the yen and hurt that country's exporters, is not aimed at influencing currency rates.

"We'll explain that we are doing the utmost to beat deflation and that if it helps the Japanese economy recover, that would contribute to Asia and the world economy," he told Reuters in an interview.

Last week, the Bank of Japan unleashed the world's most intense burst of monetary stimulus ever, pledging to inject about $1.4 trillion into the economy in less than two years, marking a radical shift from the previous incremental action.

The G20 is expected to discuss the spillover effects on emerging market economies from monetary easing in Japan and other advanced economies, Furusawa said.

The massive scale of the BOJ's stimulus pushed the yen to a four-year low against the dollar this week and has jolted Japanese bond prices, with the 10-year bond yield rebounding to 0.635 percent on Friday from a record low of 0.315 percent hit last week after the BOJ announced its policy moves.

Furusawa said he expected the Japanese government bond market to stabilize given Japan's commitment to tackling its huge public debt.

"Markets' confidence in Japanese government bonds is solid as it is backed by our strong commitment to fiscal reform, ample net external assets and domestic financial assets," he added.

DIPLOMATIC SKILLS

Furusawa, 57, assumed his post last month after heading the ministry's financial bureau, which oversees the government bond market, since August. An international policy veteran, he has spent much of his career in international and diplomatic roles.

Japan's vice minister for international affairs, who plays a key role in decisions on currency market intervention, has periodically been in the spotlight of global markets when Japan intervened in recent decades to rein in its ascendant yen. At times markets have hung on every word about foreign exchange from Japan's "currency tsar".

In recent months, however, it has been Furusawa's former boss, one-time currency chief and recently appointed Bank of Japan Governor Haruhiko Kuroda, who has the foreign exchange markets transfixed with his bold monetary policy moves.

Furusawa's diplomatic skills are nevertheless likely to be tested as the effects of Japan's policies ripple through the global economy.

"I'll try to gain understanding on what we are doing and will do both within and outside of the country," he said. "That's all I can say."

The current yen weakening reflects the effects of the BOJ's monetary easing and a shift in Japan's economic fundamentals, including persistent trade deficits, he said.

He declined to comment on whether Japan might need to intervene if the currency weakens to the point that it would significantly damage the economy by boosting import costs.

"I cannot comment on whether the current moves are rapid," he said. "The important thing is that markets determine exchange rates, and we will always closely watch markets and cooperate as appropriate as the G7 statement says."

(Additional reporting by Shinji Kitamura and Yuko Yoshikawa; Editing by Edmund Klamann)