BOJ steps aimed at ensuring economic recovery: Shirakawa

TOKYO (REUTERS) - Bank of Japan Governor Masaaki Shirakawa defended the central bank's aggressive monetary expansion, saying it was aimed at reviving the economy not at weakening the yen, as the country came under fresh international criticism ahead of a closely watched G20 gathering.

His comments came after data showed Japan's economy unexpectedly contracted in the fourth quarter, failing to escape a mild recession and playing into the hands of a government pushing for more radical stimulus measures that could cause the currency to weaken further.

Mr Shirakawa said he would make that point clear to his Group of 20 counterparts at the weekend meeting in Russia, where Japan may face heat from some countries unhappy with the yen's recent steep falls, such as export competitor South Korea.

"The BOJ is conducting monetary policy to achieve stability in Japan's economy. It will continue to do so," he told a news conference on Thursday, hours before heading for Moscow.

Expectations that Prime Minister Shinzo Abe will keep pushing the central bank for bolder measures to beat deflation have driven the yen down nearly 20 per cent against the dollar since November.

That has offered some relief to the export-reliant economy, which contracted 0.1 per cent in the fourth quarter but is showing some signs of a pick-up, thanks to improving global demand and the effect of policy stimulus.

The BOJ struck a more positive note on the economy earlier in the day while keeping its policy on hold, after having boosted its monetary stimulus and doubled its inflation target to 2 per cent just a month ago.

The yen's fast-paced declines, however, have stirred an international debate over whether Japan was effectively using money printing to steer the yen lower.

South Korea's central bank warned on Thursday that Japan's expansionary monetary policy could affect that country's future growth as a weak yen could undercut Korean exporters'competitiveness.

Japan has said the Group of Seven rich nations accepted Tokyo's view when it declared in a statement on Tuesday that fiscal and monetary policies would not be directed at devaluing currencies.

Mr Shirakawa and Finance Minister Taro Aso, who will also attend the G20 gathering, may have a tough time selling their pitch to suspicious counterparts, as many Japanese policymakers have until recently openly talked about the benefits of a weak yen on Japan's exports.

Former BOJ Deputy Governor Kazumasa Iwata, who is considered as one of the leading candidates to replace Shirakawa when he leaves his post in March, was quoted as saying that the yen is still overvalued from a trade perspective.

Shirakawa himself acknowledged that recent yen declines will gradually underpin exports, helping Japan's economy resume a moderate recovery around the middle of this year.

The dollar traded around 93.50 yen on Thursday after hitting a 33-month high of about 94.47 yen on Monday.

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