UPDATE 1-BOJ Mizuno warns risk of fall in U.S. fund inflows

TOKYO, Nov 14 (Reuters) - The dollar's weakness has benefits for global imbalances, but fund inflows to the United States could shrink if the gap between U.S. and euro-zone interest rates reverses, Bank of Japan board member Atsushi Mizuno said.

Mizuno, a policy hawk who has proposed raising Japanese interest rates since July, also said that in a country with little room to cut rates, such as Japan, monetary policy should take into account the need to act pre-emptively against asset bubbles, a text of remarks released on Wednesday showed.

In a speech to a corporate pension fund association on Nov. 7, Mizuno said central banks around the globe are making efforts to reduce excess liquidity while monitoring their countries' economic fundamentals.

"For financial markets to stabilise again in the long run, there needs to be a gradual reduction of global excess liquidity and an appropriate repricing of credit products," he said.

On currency market moves, Mizuno said falls in the dollar's trade-weighted value have helped improve global imbalances by boosting U.S. exports and supporting the nation's economy, a benefit he described as "underestimated."

"But there is also concern in financial markets over the risk of sharp dollar falls," Mizuno said.

"We need to be mindful of the risk of long-term fund flows into the United States decreasing and causing problems financing the U.S. current account deficit" if euro-zone interest rates, currently at 4.0 percent, exceed rates in the United States, now at 4.5 percent, he said.

The dollar has recently fallen against other major currencies on the view that sluggishness in the U.S. housing sector and lingering credit problems could hurt the broader U.S. economy.

The BOJ kept its key policy rate unchanged at 0.5 percent for a ninth month on Tuesday, with the nine-member board again rejecting a proposal by Mizuno to hike rates to 0.75 percent. Mizuno has argued that Japan's economic conditions have improved enough to tighten credit.