Europe to warn BOJ on low rates, yen at G7--report

TOKYO, Jan 30 (Reuters) - European governments plan to warn the Bank of Japan at next week's Group of Seven meeting that its reluctance to raise interest rates is distorting the value of an already weak yen, Bloomberg News reported on Tuesday.

Citing a draft document drawn up for Eurogroup Chairman Jean-Claude Juncker, the European delegation will say that the low Japanese rates threaten "possible distortive effects on the currency and increased risk of disorderly adjustment of the global imbalances", Bloomberg said.

Traders said the report prompted a brief dip in the euro against the yen to around 157.40 yen from near 157.70 yen before it recover to near 157.55 yen EURJPY=R.

The weak yen has taken centre stage before G7 finance ministers and central bankers meet in Germany on Feb. 9-10 as European officials have become more vocal in expressing their worries over the Japanese currency's slide.

Japan's very low interest rates have prompted investors to use the currency as a source of funds to buy higher-yielding currencies in the carry trade. Frustrated Japanese investors have also flocked to higher-yielding foreign assets.

Earlier this month the yen hit a record low against the euro and a 14-year low against the British pound after the Bank of Japan held interest rates at just 0.25 percent, and doubts have mounted about whether the BOJ will raise rates in February.

Juncker said on Monday after a meeting of euro zone finance ministers that the yen should reflect Japan's economic recovery and that the issue of the weak yen would be raised at the G7.

At the last G7 gathering in Singapore last September, European and Japanese officials made seemingly coordinated remarks that the yen should reflect the economy's recovery.