TOKYO Bank of Japan Governor Masaaki Shirakawa joined on Friday a growing call for G7 finance heads to take steps this weekend to rescue the worsening global economy.
"The world economy is in a very severe situation at the moment, so I want (the G7) to frankly exchange views on economic conditions and the outlook and to discuss policy steps to help stabilize the world economy," Shirakawa told a media conference before leaving for a meeting of G7 finance heads in Rome.
"The Japanese economy is now undergoing severe adjustments in reaction to the severity of the world economy. I will explain the background behind the extraordinary policy steps the BOJ has been taking including CP (commercial paper) purchases and stock buying."
Protectionism, in particular U.S. efforts to tie stimulus plans to a "Buy American" clause, would also be discussed, but forex issues would take a back seat in Rome, finance minister Shoichi Nakagawa said.
U.S. Treasury Secretary Timothy Geithner called this week for bold action at the meeting of finance leaders from the Group of Seven major industrialized nations to pull the world economy out of recession, prop up financial institutions and strengthen regulation.
Canadian finance minister Jim Flaherty has called for action to clean toxic assets to be cleared out of the financial system.
Finance ministers and central bank governors from Britain, Canada, France, Germany, Italy, Japan and the United States meet in Rome on Friday and Saturday.
But an analyst played down the chances of the meeting coming up with specific steps to fight the deepening credit crunch.
"As the G7 is more of a ceremonial occasion, you can't expect it to agree on something concrete, especially when each country is too occupied with its own problems," said Masaaki Kanno, chief economist at JPMorgan Securities Japan.
The shape of financial market regulation in the wake of the global financial crisis will be up for discussion by the G7, ahead of a broader G20 meeting in London in early April.
Rumbles over protectionism -- as some countries seek to steer rescue packages toward local jobs and businesses -- may also come up in Rome.
Nakagawa said the French finance minister wanted to raise the issue of a "Buy American" clause in U.S. stimulus plans at the meeting, and other G7 ministers have backed her call for a discussion.
"For the United States and Europe, who have been pushing for open markets, or any other countries to resort to protectionism under current circumstances would be, I think, absolutely wrong," Nakagawa told a news conference before leaving for Rome.
But the BOJ governor played down the risk of a return to trade restrictions that many economists say deepened the 1930s Great Depression.
"Policy makers from each country are strongly aware how important it is to avoid protectionism. I don't know what discussions will be held at the moment, but I understand that each country recognizes it is a very important issue," Shirakawa said.
Nakagawa reinforced expectations that foreign exchange would not be a focus of the meeting, despite concerns a stronger yen is crimping profits for Japan's big exporters.
"I don't intend to specifically raise the issue of currencies but I will reiterate that rapid moves (in currencies) are not desirable," he said.
G7 finance ministers and central bankers are keen to avoid upsetting troubled financial markets with squabbles over exchange rates in Rome, policymakers say.
(Additional reporting by Yuzo Saeki; Writing by Rodney Joyce)