Forex unlikely major G7 topic: Japan's Sakakibara

TOKYO (Reuters) - Foreign exchange is unlikely to be a major topic at next week's Group of Seven meeting as financial leaders focus more on the risk of a U.S. recession, a former senior official at Japan's Ministry of Finance said on Monday.

Market turmoil from problems in the U.S. subprime mortgage sector will last at least until the summer, while a possible U.S. recession could drag Asian and European economies into an adjustment phase around April, said Eisuke Sakakibara, formerly the nation's top financial diplomat.

"G7 central banks have cooperated since last summer to cope with market turmoil and will discuss how to maintain that cooperation" when their governors meet in Tokyo along with the group's finance ministers on February 9, Sakakibara told Reuters in an interview.

"It's hard for the G7 meeting to deal with specific steps to tackle global share price falls, although there may be debate on how to keep the situation from turning into a crisis," said Sakakibara, who is now a professor at Tokyo's Waseda University.

Sakakibara, once dubbed "Mr. Yen" for his ability to influence currency markets, said the yen's recent rise will not be discussed much at the G7 meeting as the United States and Europe see a strong yen as good for their economies.

The yen's rise against the dollar and euro gives U.S. and European goods a competitive advantage against Japanese exports.

"The yen is still very low in real, effective terms," Sakakibara said, adding that Japanese exports are now competitive enough to endure a rise in the yen beyond 100 yen to the dollar.

The dollar traded around 106.50 yen JPY= on Monday.

Still, the negative impact from the U.S. downturn will gradually hurt Japan's economic growth, which could fall below 1 percent this year, Sakakibara said.

There is little Japan can do to boost growth as interest rates are already at a very low 0.5 percent and a huge fiscal deficit makes it unable to take fiscal measures, he said.

Sakakibara was vice finance minister for international affairs from 1997 to 1999 and was known for a policy of aggressive intervention in currency markets.

The dollar touched a low of 104.95 yen last week, its weakest since May 2005, partly due to the Federal Reserve's 75 basis point emergency rate cut last Tuesday.

(Additional reporting by Yoshiyasu Shida, Editing by Michael Watson)