UPDATE 1-U.S. concerned about Japan domestic demand outlook

Tue Feb 18, 2014 6:11pm EST

WASHINGTON Feb 18 (Reuters) - The United States expressed concern on Tuesday about whether domestic demand will remain a principal driver of Japan's economy.

"Japan's economy has been largely driven by domestic demand over the last two years, but the outlook for domestic demand has clouded," U.S. Treasury Secretary Jack Lew said in a letter, obtained by Reuters, to members of the Group of 20, which includes many of the world's largest economies.

Japan has unleashed a massive monetary stimulus to boost its economy and fight more than a decade of stagnant economic demand. Washington has cautioned Tokyo against using the stimulus, which has put downward pressure on the value of the yen, to support exports.

Lew will be in Australia for a meeting of G20 finance ministers and central bankers scheduled for Feb. 22 and 23. In his letter, he said he looked forward to hearing about Japan's plans for economic reforms to boost domestic demand.

He also said the United States was closely monitoring the "considerable volatility" in global financial markets. Stock, bond and currency markets in developing countries have been convulsed in recent months, hit by concerns over weaker economic growth and the winding down of monetary stimulus in the United States.

Lew added he was deeply disappointed by the failure of the U.S. Congress to approve International Monetary Fund reforms.

He is likely to get an earful at the G20 meetings over Washington's failure to follow through on a pledge to give developing nations a bigger say at the IMF.

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