(Adds more comments, background)
By Yoko Nishikawa
TOKYO, Jan 13 (Reuters) - U.S. President-elect Barack Obama's new economic team, including Treasury Secretary nominee Timothy Geithner, is unlikely to use foreign exchange rates as the key policy tool to help the economy, Japan's former top financial diplomat said on Tuesday.
Financial markets are interested in finding out whether the new economic team under Obama, who takes office on Jan. 20, will be more keen than the current administration to step into the currency market to stop any rapid fall in the dollar.
"It's still unclear what they will do, but I don't think they are people who will be using foreign exchange rates as a key policy tool," Toyoo Gyohten told Reuters in an interview.
"They look at macroeconomic conditions theoretically, so I don't think they are interested in using foreign exchange rates as an important policy weapon," said Gyohten, who is now a special adviser to Japanese Prime Minister Taro Aso for leaders' summit meetings of the Group of 20.
Key members of Obama's economic team will also include former Treasury Secretary Lawrence Summers, who has been chosen to head the national economic council, and former Federal Reserve Chairman Paul Volcker, who has been appointed to chair the President's Economic Recovery Advisory Board.
Gyohten, who has published a book with Volcker, noted that Obama's economic team featured people from the public sector and academia, rather than the private sector.
"That will have strength and weakness," Gyohten said.
"But one reason behind the current financial crisis is the lack of enough understanding by authorities of changes in financial markets. As a result, revisiting our regulatory framework is a challenge. Thus, I think having people from the public sector will be a good thing."
Gyohten said the dollar would remain a key global currency in the international financial system.
"People, especially in Japan, worry that the status of the U.S. dollar as a key international currency has been eroded and that it would lead to a sharp fall in the dollar, but actually, the opposite is happening," said Gyohten, who served as vice finance minister for international affairs in the late 1980s.
He noted that the dollar has strengthened on a real effective, trade-weighted basis, during the financial crisis, as it rose against the euro and emerging market currencies.
If the financial crisis can change the trend of excessive consumption in the United States, it would help bring up the low U.S. savings rate and help reduce that country's imports.
This would mean the orthodox view that a large current account deficit in the United States leads to dollar weakness could change in the future, Gyohten said.
Gyohten, currently president of the Institute for International Monetary Affairs, said it would take until 2010 for the global economy to start recovering, adding that Obama's economic policy would hold the key to the outlook.
"The point is whether the economy can hit a bottom in the first half of this year. That may be delayed into the latter half of the year," he said, adding that the impact of drastic fiscal spending measures worldwide should support the economy around the middle of 2009. (Additional reporting by Yuko Yoshikawa; Editing by Chris Gallagher)