UPDATE 2-Japan, guarding against weak yen, urges G7 reaffirm FX agreement

·2 min read

* Japan told G7 recent FX moves have been sharp - Suzuki

* Japan will respond appropriately to FX moves - Suzuki

* Many G7 members voiced concern over inflation (New throughout, adds G7 agreement, draft communique wording)

By Leika Kihara

BONN, Germany, May 19 (Reuters) - Japan called on other G7 countries to reaffirm the group's agreement on exchange-rate policy, Finance Minister Shunichi Suzuki said on Thursday, a sign Tokyo remained on guard against the risk of further sharp declines in the yen.

Suzuki said he hoped the Group of Seven (G7) finance leaders take into account Tokyo's call in a communique to be issued after their two-day meeting ends on Friday.

"I explained how recent currency moves have been rapid, and that it was important to reaffirm the G7 agreement on exchange-rate policy," Suzuki told reporters after attending the first day of the G7 meeting.

"I also told the meeting Japan will respond appropriately to exchange-rate moves, while communicating closely with G7 members," he said.

The yen's recent declines to two-decade lows have been a source of concern for Japanese policymakers, as they inflate the already rising cost of fuel and raw material imports.

Suzuki said his request was similar to one he made at the previous G7 gathering in Washington, D.C. last month, when he described yen falls as "somewhat rapid."

The G7 advanced economies have an agreement that markets ought to determine currency rates, that the group will closely coordinate on currency moves, and that excessive and disorderly exchange-rate moves would hurt growth.

While the yen bounced back somewhat against the dollar as part of the U.S. currency's broad retreat on Thursday, many analysts expect prospects of steady interest rate hikes by the Federal Reserve to sustain the greenback's uptrend.

Many G7 finance leaders also voiced concern over inflation, Suzuki said, underscoring a growing sense among policymakers of the need to respond to risks from surging price growth.

In a draft communique obtained by Reuters, the G7 finance leaders said they will "continue to closely monitor markets given recent volatility" and reaffirm their exchange-rate commitments.

The draft also said G7 central banks are "closely monitoring the impact of price pressures on inflation expectations and will continue to appropriately calibrate the pace of monetary policy tightening in a data-dependent and clearly communicated manner." (Editing by Leslie Adler, Chizu Nomiyama and David Gregorio)

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