* Strong currencies, not weak ones, bring bubble risk
* "Right and reasonable" for surplus countries to act on FX
* Loose monetary policy does not cause asset bubbles
(Adds detail, changes dateline to BELFAST)
BELFAST, Oct 26 (Reuters) - Loose monetary policy does not cause asset price bubbles, and fear that it does is a poor reason for economies in East Asia to keep their currencies undervalued, Bank of England policymaker Adam Posen said on Tuesday.
Posen did not address British monetary policy in the speech at Queen's University in Belfast, according to the text published by the Bank of England, and instead focused on how to tackle global imbalances in trade and capital flows.
"That adjustment has been the source of rather contentious political jousting across the Pacific and around the globe of late," he said.
"I will try to offer tonight some analytical insights into why it is right and reasonable for the major surplus countries to undertake more adjustment than they have so far," he continued.
The United States and China were at loggerheads at a recent meeting of G20 developed and emerging economies in South Korea, with China resisting calls to let its currency appreciate and thus reduce its trade surplus with America.
Posen said that it was in the self-interest of countries with trade surpluses to seek to reduce them, and that these countries' central banks had a role to play here.
He blamed some East Asian commentators' opposition on an incorrect interpretation of Japanese monetary policy in the late 1980s.
Under this interpretation, Japan's real estate bubble and subsequent slump was caused by the country bowing to U.S. pressure and keeping monetary policy too loose, in a bid to weaken the yen versus the dollar.
Posen argued that this view was wrong, and that the bubble was largely caused by poor financial regulation, which led to Japanese banks lending too much to small and medium-sized businesses, especially in the construction sector.
"Japan's bubbles of the 1980s and their bursting took place due to non-monetary domestic factors," he said.
"No one in East Asia or elsewhere can credibly claim that fear of feeding an asset price bubble is justification for keeping an exchange rate undervalued," Posen said in the speech.
Instead, for open economies there was the opposite risk. Overvalued currencies risked attracting excessive foreign capital inflows that would push up domestic asset prices above fair value.
"I think central bankers in emerging markets are too smart to fall for such monetary snake oil, no matter how slick the salesmen," Posen said.
"If not, we will soon have a demonstration of how raising interest rates in an open economy will fuel bubbles further by attracting more capital inflows, rather than popping bubbles." (Reporting by Carmel Crimmins and David Milliken; Editing by Stephen Nisbet)