TOKYO (Reuters) - Japan will seek to assure its Group of 20 partners that its push to reflate the economy with aggressive monetary expansion will benefit other nations and outweigh any possible negative effects, the country's top financial diplomat said on Wednesday.
Takehiko Nakao, vice finance minister for international affairs, was speaking a day after Japan and other Group of Seven rich nations declared that fiscal and monetary policies would not be directed at devaluing currencies and reaffirmed a commitment to market-determined exchange rates.
U.S. and European officials privately have been concerned about comments from Japanese officials that seemed to suggest Tokyo was targeting a specific level for the yen.
"Today, we share the view that each country should put their house in order by pursuing appropriate monetary, fiscal and structural policies and that would be the best contribution to the global economy," Nakao told Reuters in an interview.
The G7 statement was seen as designed to calm fears that Tokyo was aiming to guide the yen lower with its aggressive monetary easing, which spurred market talk of looming currency wars if others followed suit.
Markets, however, responded with sharp swings, uncertain whether to take the statement as a warning to Tokyo or a stamp of approval for its push for hefty monetary expansion that since October has sent the yen down 15 percent against the dollar to three-year lows.
Nakao, refused to be drawn into such speculation, saying only that the G7 statement, issued ahead of a Feb 15-16 meeting of the Group of 20 developed and emerging economies in Moscow, was meant as a sign of unity from the rich bloc.
"The reason we came up with the new G7 statement before the G20 is that it is really important to have a shared view about exchange rates and monetary and fiscal policies."
Tokyo has repeatedly defended its actions, saying the yen's decline, in itself a reversal of the currency's past excess, was merely a side-effect of policies designed to pull the economy out of nearly two decades of stagnation and deflation.
Nakao said Finance Minister Taro Aso would reinforce that message in the Russian capital, the first G20 gathering since Prime Minister Shinzo Abe swept to power in December promising to lift Japan out of nearly two decades of deflation.
His policies have been dubbed Abenomics.
"To foreign authorities and observers, we have explained three-pronged policies of the Abe administration, that is: bold monetary policy, flexible fiscal policy and growth strategy," he said. "We have been explaining this very thoroughly and we'll continue to do so at the G20 meeting."
Nakao said the meeting would be held in a much improved global environment compared with the last G20 gatherings in November in Mexico.
"Obviously there is a stronger outlook for the world economy today and more risk-on mode in financial markets," he said, citing the euro zone's progress in containing its sovereign debt crisis, signs of economic recovery in the United States, stronger-than-expected growth in China and a solid performance of Southeast Asian economies.
There was no room for complacency, however, and challenges remained, including the need for medium-term fiscal consolidation in many countries, including Japan.
He said Japan would confirm its commitment made to G20 to halve its primary fiscal deficit by the year ending in March 2016 regardless of whether the group would decide to modify targets for other members.
Nakao also said steps to support long-term growth were important both to sustain the positive stimulus effect and also to ensure the credibility of Tokyo's plans to rein in its record public debt load, which has reached 240 percent of national output.
The government is due to detail its growth strategy and fiscal consolidation targets in mid-2013 and Nakao said there was still much untapped potential in the world's third-largest economy that could be unlocked with deregulation and other reforms.
While Japan has been in the spotlight because of Abe's policies and their dramatic impact on the yen, the United States, Britain and the euro zone are also resorting to unconventional monetary levers to revive their economies in the wake of the global financial crisis.
That has rekindled worries that massive liquidity injections could spill over into unwelcome capital flows into emerging economies, possibly boosting their currencies.
But Nakao said inaction on the part of advanced economies would be even worse and that successful pro-growth policies adopted by Japan and its peers would strengthen overall world economy.
Writing by Tomasz Janowski; Editing by Neil Fullick