UPDATE 6-G7 fires warning shot over currencies, markets confused
* G7 says market must set currency rates
* G7 says domestic policies must not aim to weaken currencies
* Japan content with statement
* But G7 official says statement was aimed at yen levels
By Mike Peacock and Anna Yukhananov
LONDON/WASHINGTON, Feb 12 (Reuters) - The Group of Seven rich nations sought on Tuesday to cool growing tension over exchange rates sparked by weakness in the Japanese yen, but currency markets found the effort lacking in clarity, triggering a second straight day of volatility.
The G7 declared that fiscal and monetary policies would not be directed at devaluing currencies, a statement meant to soothe nerves that Tokyo was aiming to guide the yen lower with its aggressive expansion of monetary policy.
Japan said the statement gave it a green light to continue efforts to reflate its economy but a G7 official said it was aimed squarely at Tokyo, prompting the yen to surge.
"Rather than calm the markets, the poorly communicated statement has significantly raised volatility," said Richard Gilhooly, fixed-income strategist at TD Securities in New York. Continued...