- Financial markets have settled down somewhat after the last few months of turmoil, but the problems are not over yet, Bank of Japan Governor Toshihiko Fukui said late on Thursday, hours before a Group of Seven meeting.
Japanese Finance Minister Fukushiro Nukaga added that Friday's G7 meeting of finance officials will be crucial for discussing the impact of the market turbulence, adding that Japan would tell its G7 peers that it wants to play a role in underpinning stable economic growth in the world.
"Financial markets are slowly improving, but problems have yet to be solved," Fukui told reporters in Washington.
Global financial markets were shaken by a sudden tightening in credit conditions in early August stemming from a downturn in the U.S. subprime mortgage market.
The health of the world economy in the wake of the turbulence will be high on the agenda when finance ministers and central bank governors from Britain, Canada, France, Germany, Italy, Japan and the United States meet on Friday.
The Japanese central bank chief, who met with U.S. Federal Reserve Chairman Ben Bernanke on Thursday, remained cautious about the U.S. economic outlook, noting that uncertainty over the world's largest economy is growing at least in the near term.
"Any prolonged slowdown in the U.S. housing market is a source of concern and raises uncertainty," Fukui said.
But he added: "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."
The International Monetary Fund on Wednesday slashed its U.S. and global growth estimates for 2008 in a twice-yearly report, citing the housing downturn and financial market unrest.
It now expects 4.8 percent growth in the world economy in 2008, down from its previous estimate of 5.2 percent growth.
Nukaga said he was looking forward to attending his first G7 finance ministers' meeting.
"I will tell others that Japan is making efforts to ensure sustained growth and that it wants to play a role in achieving stable global growth," Nukaga told reporters as he arrived in Washington late on Thursday.
Nukaga also said he would discuss the global economic outlook and how the U.S. subprime issues affect the U.S. economy with U.S. Treasury Secretary Henry Paulson in a meeting on Friday.
On currencies, Nukaga and Fukui said little.
When asked what kind of G7 talks he expected on currencies, Nukaga said: "We will discuss global economic conditions and exchange views on economic fundamentals, and the issue of foreign exchange rates will of course be raised."
Speaking separately, Fukui said the G7 would discuss foreign exchange rates in the broader context of conducting economic and monetary policy so that currencies reflect economic fundamentals.
Their comments came before the dollar slipped below 115 yen briefly, hitting its lowest level since October 1, during Asian trading hours on Friday as a slide in Japanese equities pointed to an ebbing of risk appetite and encouraged unwinding of risky bets against the low-yielding yen.
On Japan's monetary policy, Fukui said his stance 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.
Traders expect the BOJ to raise the key policy target rate from the current 0.5 percent around December or early next year.
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