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WASHINGTON (Kyodo) The United States will urge Japan during a Group of Seven top financial meeting this week to advance structural reforms to attain a potential economic growth of 3 percent instead of 1.5 percent, a senior U.S. Treasury official said Thursday.

While stressing the need for “more lasting” sustainable growth, the United States will also call on Japan to keep intact its ongoing policy of quantitative monetary easing to completely stem its deflation, Treasury Undersecretary for International Affairs John Taylor told reporters.

“The deflation problem has become less serious, but as the Bank of Japan has indicated, it’s not gone yet,” Taylor said in a press briefing a day before finance ministers and central bank governors from the G7 economic powers gather in Washington for a two-day meeting.

“With respect to raising growth in a more lasting way, to get the growth rate higher on a sustained basis, that does require the structural kinds of changes,” Taylor said. “It’s not a monetary policy or fiscal policy issue.”

Taylor noted that Japan has a “potential growth rate of 3 percent rather than a 1.5 percent rate, which it seems to be in Japan at this point in time.”

U.S. Treasury Secretary John Snow and Finance Minister Sadakazu Tanigaki will hold talks Friday shortly before the G7 meeting, which precedes a spate of gatherings of the International Monetary Fund and the World Bank on Saturday and Sunday.

The G7 meeting also involves Britain, Canada, France, Germany and Italy.

Taylor said the G7 financial leaders will discuss policy measures to deal with the global imbalances led by the huge U.S. current account deficit and slower growth in Japan and Europe, China’s exchange policy, and debt relief and other development issues.

Singling out Germany for its “growth deficit,” Taylor suggested that Japan and Europe need to boost their weak economies compared with the continued strong U.S. expansion to help correct the imbalances, while the United States works to reduce its huge budget deficit.

“The policies that are related to the current account deficit are budget deficit reduction in the United States, the agenda for growth to speed growth in the countries that are not growing so rapidly, and move toward more flexible exchange rates in countries that don’t have flexible exchange rates,” according to Taylor.

Taylor said the G7 meeting will also address the rising crude oil prices. But he played down the effects on the expanding world economy, saying there is “so much strength in the global expansion now that they will not derail it.”

But IMF Managing Director Rodrigo de Rato told a separate news conference Thursday that “downside risk challenges” have increased in relation to the rising oil prices and the current account imbalances.

“To wait for the environment to get less benign, we believe, would be a huge mistake, and also a big responsibility on some specific governments,” accoridng to de Rato.

Also speaking at a separate news conference, World Bank President James Wolfensohn said there is “no doubt that oil and energy is a huge issue for the economy” of developing countries.

As for China, Taylor said Beijing has already taken “important” preparatory steps, and should now be ready to adopt a flexible exchange rate.

“We have very much stressed that they can move to have a flexible exchange rate now,” Taylor said. But he said the United States will not set a deadline.

China’s finance minister and central bank chief will not take part in this G7 meeting. They joined their G7 counterparts in the two previous meetings late fall in Washington and in February in London.

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