UPDATE 1-BOJ Shirakawa calls for Asian FX flexibility

Mon Jun 11, 2012 9:23pm EDT

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* Japan's financial system stable and resilient

By Braden Reddall

SAN FRANCISCO, June 11 (Reuters) - Bank of Japan Governor Masaaki Shirakawa on Monday called for exchange-rate flexibility in major Asian economies, warning that a lack of this may trigger abrupt shifts in capital flows.

Shirakawa also said a solution to Europe's debt problem ultimately rests with the ability and efforts of peripheral countries to boost productivity and growth.

In a conference held by the San Francisco Federal Reserve, Shirakawa said Asia's economic fundamentals are relatively strong and welcomed recent efforts by some nations in the region to enhance exchange-rate flexibility.

"It is ... imperative that each influential economy maintain sufficient exchange rate flexibility," Shirakawa said in the conference on Asia's role in challenges on global finance, which he joined through a live video link from Tokyo.

"Under economic and financial globalization, inflexibility of exchange rates may trigger abrupt changes in international capital flows and increase the burden of monetary and prudential policies," he added.

Shirakawa did not touch on Japanese monetary policy but said the country's financial system has been stable and resilient.

"Given that Japan experienced a financial crisis in 1990s, various measures have already been taken to strengthen its financial system," he said.

"Partly due to such efforts, Japan's financial system has remained mostly stable, surviving successive events such as the failures of Lehman Brothers and other financial institutions, the Great East Japan Earthquake and the European debt problem."

The BOJ is expected to keep its monetary policy unchanged on Friday, saving its financial firepower in case Greece ignites fresh turmoil after the market respite offered by a euro zone agreement to shore up Spain's banks.

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