BOJ Fukui: Worries remain over US, market turmoil

WASHINGTON, Oct 18 (Reuters) - Financial markets have settled down to an extent after their recent turmoil but their troubles are not yet over, Bank of Japan Governor Toshihiko Fukui said on Thursday.

"Financial markets are slowly improving but problems have yet to be solved," he told reporters in Washington.

Global financial markets have been in turmoil after a sudden tightening in credit conditions surfaced in early August, stemming from a downturn in the U.S. mortgage market.

The Japanese central bank chief, who met with U.S. Federal Reserve Chairman Ben Bernanke earlier in the day, also cited uncertainty over the outlook for the U.S. economy.

"A prolonged slowdown in the U.S. housing market is a source of concern and raises uncertainty," he said. "We believe that after a period of slower growth, the U.S. economy will return moderately to its potential growth, and we believe that that main scenario has not changed."

Fukui also met separately with International Monetary Fund Managing Director Rodrigo Rato on Friday ahead of a gathering of Group of Seven (G7) finance ministers and central bankers on Friday and other international meetings over the weekend.

The G7 will discuss foreign exchange rates in the broader context of conducting economic and monetary policy so currencies reflect economic fundamentals, Fukui said.

The G7 would also discuss longer-term issues such as crude oil prices and environmental issues, he added.

On Japan's monetary policy, Fukui said that his stance on monetary policy would not change just because he is in Washington.

Asked if it would be difficult to conduct a rate hike by the end of the year, Fukui merely said that the BOJ's policy-setting board will make a decision by weighing market conditions and the economy going forward.

Market participants expect the BOJ to raise the key policy target rate from the current 0.5 percent around December or early next year.