Japan's Watanabe sanguine on G3 price pressures

NEW YORK- Inflation in the world's most developed economies is not a major cause for concern, while global equity markets appear to have stabilized after the recent bout of heavy selling, Japan's top financial diplomat has said.

"I don't think there's any great need to worry" about inflation, Hiroshi Watanabe, the Japanese Finance Ministry's vice minister for international affairs, said at a news conference in New York on Wednesday local time.

He said there were no signs of rapidly rising price pressures in developed economies such as the United States, Japan and the euro zone - known as the Group of Three (G3).

Recent commentary from monetary policy officials in the G3 point to higher interest rates to fight off inflation and mop up what many analysts say is excess liquidity sloshing around the global financial system following years of historically low interest rates.

Japan's interest rates are still virtually zero, but the Bank of Japan has started to drain liquidity from the banking system in other ways and is expected to start raising interest rates some time in the second half of the year.

Watanabe, in the United States for a six-city tour to promote Japanese government bonds to US investors, also said stock markets around the world appear to have emerged from their recent sharp downturn.

"Global equity markets, especially in developed countries, do look like they have stabilized after the correction," he said.

The sell-off in Japan's Nikkei from early May through mid- June, when the benchmark average lost around 17 per cent of its value, did not take it down to "crisis levels," Watanabe said.

Japan, meanwhile, has no plans to reduce its huge accumulation of foreign-exchange reserves, Watanabe said.

Japan has around US$843 billion ($1377 billion) in reserves which was, until recently, the largest pool of reserves in the world.

China now has the largest holding of international reserves, with around US$875 billion at the last official count.

Yet a Chinese government official said earlier this month, who spoke on condition of anonymity, that China's reserves now exceed the US$900 billion mark.

- REUTERS