Japan finmin - Fed decision likely reflected voice of emerging economies

TOKYO (Reuters) - Japanese Finance Minister Taro Aso said on Friday that the U.S. decision to hold interest rates steady probably reflected lobbying by emerging economies at the recent G20 meeting that rapid U.S. rate hikes would damage their economies.

Aso said low U.S. rates and capital flows into emerging economies had supported their growth since the global financial crisis, suggesting America should make future rate rises slowly, given fears that rapid hikes would spur capital flight.

Aso's comments underline concerns among policymakers that hasty U.S. rate rises could deal a blow to emerging economies in Asia. The region accounts for about half of Japanese exports, which are slowing in the face of China's economic slowdown.

"A lot of countries would face depreciation of their own currencies if the U.S. raises rates rapidly just because of improvements in its own economy, which would cause a reversal of capital back to the U.S.," Aso told reporters after a cabinet meeting.

"I think there are many countries that won't welcome capital flight."

The U.S. Federal Reserve kept interest rates unchanged on Thursday, probably giving in to worries about the global economy, financial market volatility, and sluggish inflation at home.

It did, however, leave open the possibility of a modest policy tightening later this year.

At the G20 finance chiefs' meeting in Turkey this month, emerging market nations, including the BRICS - Brazil, Russia, India, China and South Africa - voiced concerns that rapid U.S. rate hikes could cause their economies to slump, Aso said.

"Responses from other countries probably had a certain impact", on the Fed decision, he said.

Hiroshi Watanabe, a former top currency diplomat who now heads the state-operated Japan Bank for International Cooperation, welcomed the Fed's move, saying the current U.S. economy and inflation did not justify a hike.

"The Fed should not raise interest rates this year," he said, echoing requests by the International Monetary Fund (IMF) and World Bank that U.S. rate hikes should be delayed.

"Neither the U.S. economy nor its inflation is solid enough to override such a request."

Economics Minister Akira Amari said the Fed's decision to delay a rate increase likely reflected the state of the U.S.- and world economy, noting the Fed's course of action was appropriate.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer and Muralikumar Anantharaman)

By Tetsushi Kajimoto