By Leika Kihara
WASHINGTON, Oct 7 (Reuters) - The yen's rapid appreciation dampens expectations of an economic recovery in Japan and hurts business and household sentiment, Finance Minister Yoshihiko Noda said in a statement on Thursday.
Central banks have a very important role to play under these circumstances with deflation among the factors behind the strong yen, Noda said in a statement to the International Monetary Fund and World Bank annual meeting.
"Japan's economy has been recovering but faces the tough challenge posed by deflation," Noda said.
"Deflation keeps real interest rates at high levels and discourages companies from investing in technological innovations in the medium- to long-term perspective."
He added that the Bank of Japan will maintain an extremely accommodative monetary policy and take timely and appropriate policy action as needed.
Currency rates will be a hot topic at the Group of Seven and IMF meetings starting on Friday, where the issue of whether and how nations should influence exchange rates is pitching rich nations against emerging economies in Asia and Latin America.
Japan intervened in foreign exchange markets for the first time in six years last month to drive down the value of the yen and help its fragile, export-reliant economy.
The BOJ surprised markets on Tuesday by pushing down interest rates to zero and pledging asset purchases to pump more money into the struggling economy. [ID:nTOE69305D]
But the dollar tumbled to a new 15-year low against the yen on rising expectations that the U.S. Federal Reserve will embark on aggressive monetary easing.