--Kuroda: Japan also happy if euro strengthens vs US dollar
--Kuroda: Euro is undervalued in relation to yen
--Kuroda: Much room for euro to strengthen further in coming months
--Kuroda: FX rate should move "smoothly" with fundamentals
--Kuroda: Japan's has not changed exchange rate policy
--Kuroda: Recent rate moves show BOJ is flexible
--Kuroda hopes BOJ continues to adjust policy with fundamentals
--Kuroda: Impact of weaker yen on Asian currencies unclear
--Kuroda: Japanese fiscal situation serious but not breaking down
--Kuroda: 1.2% Japanese growth in fiscal year 2000 is still achievable
--Kuroda: No need to adjust 2001 1.7% growth target at this stage

By Anna Willard
Washington, March 8 (BridgeNews) - The Japanese Finance Ministry would be quite happy if the euro strengthened against the yen and the dollar, Japanese Vice Minister of Finance for International Affairs Haruhiko Kuroda said Thursday. While there has been no change in Japanese exchange rate policy, the euro is undervalued against the yen, Kuroda said in an exclusive interview with BridgeNews. He also said that exchange rates should move "smoothly" in line with economic fundamentals.
* * * "We would be quite happy if the euro further strengthens against the yen and the dollar," Kuroda said. "If fundamentals appear to be strong, the currency should be strong. Vis-a-vis the yen, the euro is undervalued--there is great room for the euro to strengthen in the coming months."
Kuroda stressed that any movements in exchange rates should be smooth. "You can't say that fundamentals suddenly change, they usually move smoothly so exchange rate movements should be smooth as well."
However, Kuroda was keen to dampen recent market speculation that Finance Minister Kiichi Miyazawa changed foreign exchange policy in comments Wednesday.
"I would like to emphasize that Japanese foreign exchange policy has not changed," he said, adding that did not intend to "deliberately or artificially weaken or strengthen" the yen with his comments.
Asked whether he was concerned that a weaker exchange rate could have a negative impact on other Asian economies and currencies, Kuroda said that the impact of that would be difficult to forecast.
"Any movement in the yen would have a somewhat undetermined effect on other exchange rates," he said.
Kuroda said that since most of the foreign exchange regimes in Asia are now floating they would "not necessarily be impacted." Hong Kong maintains a currency peg, but he said that this had proved resistant to the Asian crisis in the 1990s and as such he did not think that the Hong Kong economy would be much affected by any major exchange rate movements.
BANK OF JAPAN FLEXIBLE TO CHANGING ECONOMY
On the subject of the Bank of Japan, he said that the recent reductions in interest rates "show that the BOJ is flexible and can adjust monetary policy to the changing economic situation."
The BOJ on Feb. 28 lowered the discount and the unsecured overnight call loan rate each by 10 basis points to 0.25% and 0.15%, respectively. The next monetary policy meeting is scheduled for March 19.
"I hope that and am sure that Bank of Japan policy board will continue to adjust policy reflecting the changing economic situation including prices," he said.
Asked about Miyazawa's Thursday comments that the fiscal structure in Japan is "near a major breakdown," Kuroda affirmed that the fiscal situation is "not very good" but denied that the fiscal situation was nearing a breakdown.
He added that once an economic recovery is underway, the government will have to work hard on fiscal consolidation.
Kuroda said he believes the government's 1.2% growth target for the fiscal year 2000 which ends in March "is still achievable" and said that it was too early to talk about revisions to the 1.7% target for 2001. "At this stage I can only say I hope that the forecast is fulfilled.
I don't think at this stage it is necessary to adjust the target because we're not even in the fiscal year yet," he said.
Kuroda said that various factors could force a revision to the target, but the slowdown in the U.S. economy would not likely be one of them because the forecast was made in December when it was already clear that the U.S. was slowing down.
Kuroda also said that the Japanese government welcomes the "somewhat more cooperative approach to foreign economics" by the Bush economic team, but that it is still too early to say exactly how that policy would play out.
Kuroda said that he would not meet with the newly nominated undersecretary for international affairs in the Treasury department, John Taylor, during this visit to Washington, because the Japanese official said he was purely here to participate in a closed International Monetary Fund conference on standards and codes. End