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UPDATE 1-BOJ head warns inflexible FX may delay adjustment

Published 11/04/2010, 12:27 AM
Updated 11/04/2010, 12:32 AM

* Shirakawa warns of slow Japanese economic growth ahead

* Won't comment directly on policy, post-Fed market move

* BOJ kicks off rescheduled two-day rate review ending Friday

* BOJ likely to keep policy on hold with yen gains subdued

By Leika Kihara and Rie Ishiguro

TOKYO, Nov 4 (Reuters) - Inflexible currency regimes maintained by emerging economies may delay necessary adjustments in global imbalances, Bank of Japan Governor Masaaki Shirakawa said on Thursday.

Shirakawa also warned that Japan's economy will experience some slowdown in exports and output ahead, suggesting the central bank will keep monetary conditions loose and consider further easing if risks to growth increase.

The BOJ starts its two-day meeting later on Thursday and many analysts expect the central bank to keep policy settings unchanged after the Federal Reserve's monetary easing the day before broadly met expectations and had little impact on the yen.

"Japan's economy appears to be heading toward a moderate recovery. But improvements are weakening due to slowing growth in exports and output," Shirakawa told a seminar before attending the BOJ's rate review.

The Japanese central bank pushed forward its meeting from mid-November to speed up the launch of its 5-trillion-yen ($61.88 billion) asset buying scheme announced early last month.

The governor did not comment directly on the outlook for monetary policy or market moves following the Fed's announcement that it would buy $600 billion in government debt to support a struggling U.S. economy.

Shirakawa said the difference between sluggish growth in rich economies, which are still struggling with balance sheet adjustments, and fast-growing emerging nations was heightening uncertainty over the global economic outlook.

"If currency rates, which serve as a means for adjusting imbalances, lack flexibility, that could delay necessary adjustments" he said.

The United States and European countries have criticised Beijing for keeping its currency, the yuan, artificially low to give the country's exports an unfair trade advantage.

China and other emerging countries, in turn, have blamed extremely loose monetary policies in advanced economies for triggering a flood of capital into their economies and pushing up their currencies.

Group of 20 finance leaders last month agreed on the need to reduce "persistently large" current account surpluses and deficits, but failed to agree on specific targets as a percentage of gross domestic product.

The topic will likely gain centre stage this weekend when APEC finance leaders gather in Japan and next week, when G20 leaders hold a summit in South Korea. (Editing by Tomasz Janowski)

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