Japanese Finance Minister Yoshihiko Noda said on Monday that market trust in the dollar and U.S. Treasuries has not wavered in the wake of a U.S. credit downgrade, indicating Tokyo's readiness to maintain its massive holdings of U.S. government bonds.

Noda also said the Group of Seven finance leaders agreed on a Monday telephone call that excess volatility and disorderly exchange-rate movements were not desirable.

He did not comment on whether they discussed the possibility of joint currency intervention to support the dollar, saying only that Japan asked its G7 counterparts for their statement to make a clear mention of issues related to the currency market.

We will continue to carefully monitor market moves. We also confirmed the G7 stance on currencies, Noda told reporters after the phone meeting.

In a statement issued after the conference call, the G7 said they will consult closely on actions in exchange-rate markets and cooperate as appropriate.

Japan explained to its G7 counterparts that Tokyo's currency intervention last week was aimed at checking speculative and disorderly market moves, Noda said.

He did not comment on whether he thought Japan gained G7 consent for its yen-weakening intervention.

Bank of Japan Governor Masaaki Shirakawa also attended the conference call.

BOJ TO KEEP FX INTERVENTION UNSTERILIZED

The G7 call was arranged after worries of another U.S. recession and concern about the euro zone debt crisis sparked a global stock market slump that wiped $2.5 trillion off companies' values in the past week.

On the assumption that the United States will take steps to restore its finances, I believe confidence in U.S. Treasuries has not been shaken. They remain an attractive (investment), Noda said.

Japan held $912 billion in U.S. Treasuries as of May 2011, second only to China's $1.16 trillion in holdings, according to the U.S. Treasury Department.

Japanese authorities intervened in currencies and the central bank eased monetary policy last week to ease pressure on the export-reliant economy after the yen surged close to a record high, as investors bought it as a refuge from the fiscal and economic woes in Europe and the United States.

The central bank will refrain from draining funds that entered the market through last week's yen-selling intervention, a BOJ source said on Monday, thereby amplifying the effect of currency intervention and monetary easing.

The BOJ has so far skipped money market operations to offer funds to the market but is ready to pump huge amounts of liquidity into the banking system on any signs of stress in the money markets.

We're closely watching market moves and are ready to offer funds anytime when necessary, the source told Reuters.

Borrowing costs have stayed very low in Japan despite market jitters over debt woes in the United States and Europe, due in part to the central bank's aggressive monetary easing.

(Additional reporting by Rie Ishiguro and Leika Kihara; Writing by Leika Kihara; Editing by Nathan Layne and Edmund Klamann)

China Japan