UPDATE 1-Germany, Japan call for stable FX rates ahead of G7 meeting

Wed May 4, 2016 2:15pm EDT
 
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* Japan PM Abe says ready to act if necessary

* Merkel says stable currencies are of great value

* G7 economic powers to meet end-May

MESEBERG, Germany, May 4 (Reuters) - Japanese Prime Minister Shinzo Abe and German Chancellor Angela Merkel said on Wednesday they wanted to avoid turbulence on foreign exchange markets and Abe said Tokyo would act if necessary.

The yen surged to an 18-month high against the dollar after the Bank of Japan held off expanding monetary stimulus last week, defying market expectations for action even as soft global demand, an unwelcome rise in the yen and weak consumption threatened to derail a fragile economic recovery.

"We are observing the currency market and if necessary we will then have to act," said Abe, who was in Germany to prepare with Merkel for an end-May meeting of the Group of Seven (G7) economic powers.

"I note that we are seeing very speculative, fast movements (on the currency markets)," he told reporters, adding that the Group of 20 leading world economies had already agreed that targeted political measures to influence currency rates were undesirable.

"We have said at the G20 that we must aim for stable currency rates," Abe said.

Merkel said there were no winners from competitive currency devaluations, adding that the "comparative stability of currencies to one another is of great value".

Bank of Japan Governor Haruhiko Kuroda said on Monday the yen's recent gains may hurt the country's economy, stressing his readiness to expand monetary stimulus if the risks threaten to keep the central bank from hitting its 2 percent inflation target. (Reporting by Gernot Heller; Writing by Paul Carrel; Editing by Gareth Jones)