UPDATE 1-Japan's Aso: No plan to buy foreign bonds for monetary easing
* Purchases of foreign bonds could spark currency war
* Japan dodges direct criticism at G20 summit
* Competitive currency devaluation worries still linger
By Stanley White
TOKYO, Feb 19 (Reuters) - Japan has no plans to buy foreign currency denominated bonds as part of a monetary easing plan, the finance minister said on Tuesday, a sign the government could be stepping back from more controversial proposals to end nearly 20 years of deflation.
Japanese Prime Minister Shinzo Abe, his advisers and some members of the Bank of Japan's policy board have floated the idea since last year, but if implemented the move is seen as likely to attract protest from other countries that Japan is devaluing the yen to boost its economy at their expense.
The yen rose shortly after Aso's comments as traders digest the news and attempt to calculate how far Japan's new government can ease monetary policy and what effect further monetary expansion would have on currencies and foreign relations.
Japan avoided direct criticism of Abe's policies at a Group of 20 summit last week, but worries linger that if Japan's rhetoric to weaken the yen seems excessive it could spark a wave of competitive currency devaluations that could harm the global economy.
"I have no intention of doing this as a method to ease monetary policy," Aso said, when asked about central bank purchases of foreign bonds.
Aso's comments seemed intended to moderate the tone of the debate - only on Monday Abe said buying foreign bonds was a monetary option.
Aso added that for the time being the government had no plan to revise the BOJ Law, which guarantees the central bank's independence and determines its policy mandate.
The G20 nations, responding to feverish debate last week about competitive devaluations between the world's economic powers, said on Saturday there would be no currency war.