UPDATE 1-Germany's Schaeuble worried by Japan monetary easing

Thu Jan 17, 2013 7:20am EST

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BERLIN Jan 17 (Reuters) - German Finance Minister Wolfgang Schaeuble said on Thursday he was very concerned about an expected further easing of monetary policy in Japan, which the new government is encouraging.

"I'm pretty worried about the new policies of Japan's newly-elected government," Schaeuble said in a speech to the German Bundestag (lower house of parliament). "When you think of the surplus of liquidity on global financial markets, it is fuelled further by a wrong understanding of central bank policy."

The Bank of Japan eased policy five times last year but Prime Minister Shinzo Abe, who took office last month, has put pressure on the central bank for even bolder monetary easing at a policy meeting next week.

The independent BOJ, under pressure from Abe, will double its inflation target to 2 percent and consider easing policy again, most likely through an increase in its 101 trillion yen ($1.1 trillion) asset-buying and lending programme, sources have told Reuters.

A Russian central banker has warned of the risk of other states following Japan with a round of destabilising currency devaluations - Alexei Ulyukayev, first deputy chairman of the central bank, used the term "currency wars".

The euro rose to its highest in 20 months against the yen this week, which may have been what prompted Jean-Claude Juncker, head of the Eurogroup of euro zone finance ministers, to tell business leaders the euro was "dangerously high".

German Economy Minister Philipp Roesler said on Wednesday, presenting the 2013 economic outlook, that he did not entirely share Juncker's view but did want the European Central Bank to return "as quickly as possible" to its primary mandate of ensuring price stability in the euro zone.

Roesler said Germany does not need to worry about rising interest rates in the current year. Germany's annual inflation rate rose for the first time in four months in December, just breaching the ECB's target threshold of 2 percent.

The German government and the Bundesbank have both hinted they would tolerate higher prices as long as euro-wide inflation remains under control. That could help ailing euro zone countries boost their competitiveness.

Schaeuble told the Bundestag that the common currency zone was on track to overcome its sovereign debt crisis, though he cautioned that "we are not over the mountain yet". (Reporting by Stephen Brown and Madeline Chambers; Editing by Catherine Evans)

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