BoJ's Fukui says foreign exchange volatility undesirable

Bank of Japan Governor Toshihiko Fukui said on Friday excessively volatile currencies are undesirable and exchange rates moves should be steady, Bank of Japan Governor Toshihiko Fukui said on Friday. Speaking to reporters ahead of a meeting of Group of Seven finance ministers and central bankers, Fukui also urged the United States to consolidate its fiscal position and called for China to move towards a more flexible economy.
"For any country, exchange rates should move according to fundamentals and in a stable manner. No country wants excessive volatility and the consensus view is that it is harmful," he said.
"In the long-run the US needs to consolidate its fiscal position and improve savings rates. Japan and Europe should enhance growth potential by promoting structural reforms."
The huge US fiscal and current account deficits have contributed to the dollar's three-year decline and pushed the yen higher to a five-year high against the dollar last year, threatening to damage Japan's export-led economy.
Focuses of the two-day G7 meeting, which invited key emerging countries like China include the global imbalances and exchange rate flexibility.
China, which has pegged its yuan currency to the dollar for the past decade, has come under international pressure to relax its foreign exchange policy to share the burden of dollar weakness and help correct the global imbalances.
Fukui said: "China should fix various social, economic rigidities and promote deregulation."
He added a flexible yuan was one of the important issues in order for China to be fully integrated into the market mechanism.
China has said it would adopt a flexible exchange rate policy in the future but given no timetable. It has emphasised however it would promote financial sector reforms before making any changes to the currency policy.
Japan has been calling for an early shift to greater yuan flexibility but it acknowledges China needs to set its own pace in FX policy reforms.
For the global economy, Fukui painted an optimistic picture while highlighted some risks.
"This year for the global economy the growth rate might fall a bit but it is expected to be on a smooth path. The IMF has that outlook and G7 largely shares this view. But there are many risk factors and these need to be taken into account," he said.