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Japan Economy Minister Goto urges US banks, regulators to tackle liquidity risks

Japan's Minister for Economic Revitalisation Shigeyuki Goto speaks during an interview with Reuters in Tokyo

By Tetsushi Kajimoto and Yoshifumi Takemoto

TOKYO (Reuters) -Banking sector problems in the United States and Europe were caused by liquidity and interest rates risks, but won't impact on Japan's economy and financial system for now, Economy Minister Shigeyuki Goto said on Tuesday.

Goto spoke to Reuters in an interview after U.S. regulators seized First Republic Bank and sold its assets to JPMorgan Chase & Co, in a deal to resolve the largest U.S. bank failure since the 2008 financial crisis and draw a line under a lingering banking turmoil.

"What happened to the West involved risks of liquidity and interest rates. Financial institutions and authorities will need to respond firmly to liquidity risks," Goto said.

"I don't see the U.S. financial sector facing big problems."

Asked if the U.S. banking woes may cause a delay in any Bank of Japan efforts to normalise its easing policy down the road, Goto said he expected the central bank to steer policy flexibly and appropriately, without elaborating further.

Risk factors warrant attention such as downward any revision to forecasts for the world economy and financial market fluctuations as Western countries continue to tighten monetary policy, he added.

"The BOJ as central bank should tackle monetary policy operations, but I don't see the current financial situation impacting Japan's economy and financial sector as a whole.

"I expect the BOJ to guide monetary policy flexibly, meaning that the central bank should do so appropriately taking economy and financial markets into account."

On Friday, the BOJ kept ultra-low interest rates but announced a plan to review its past monetary policy moves, laying the groundwork for new Governor Kazuo Ueda to gradually phase out his predecessor's massive stimulus programme.

Japan plans to double military spending over the coming three years to counter threats from China and North Korea as well as double childcare spending as it seeks to reverse dwindling birth rates.

However, the government is struggling to secure permanent sources of funding for the boost in spending, which will further strain the industrial world's heaviest debt that tops 250% of Japan's annual economic output.

Goto said it would be difficult to tap sales tax revenue as a funding source to pay for additional childcare spending given the fragile state of the Japanese economy.

As the first step to rein in snowballing debt, Goto said the government will stick to its aim of balancing the country's primary budget excluding new bond sales and debt servicing costs by the fiscal year-end in March 2026, a target he described as "not easy".

(Reporting by Tetsushi Kajimoto and Yoshifumi Takemoto; Editing by Lincoln Feast.)