FINANCE leaders of the Group of Seven (G7) countries in a clear reference to the yen's weakness against the US dollar warned against excessive currency shifts that could entail renewed large external imbalances.

In a joint statement, they stressed "the importance of avoiding exchange rates that could lead to the re-emergence of large external imbalances."

They said they were ready to co-operate as appropriate in exchange markets" to avoid any such developments.

Finance ministers and central bank governors of Britain, Canada, France, Germany, Italy, Japan and the United States said in the statement - released after day-long talks at the US Treasury - that they had discussed developments since their midFebruary meeting in Berlin.

They recalled that they had agreed at the time that major misalignments in exchange markets had been corrected" with the orderly reversal of the dollar which reached an all time low against the yen in April, 1995.

The ministers reaffirmed that exchange rates must reflect economic fundamentals.

"Excessive volatility and significant deviations from the fundamentals are undesirable," the statement said.

"We agreed to monitor developments and to cooperate as appropriate in exchange markets," they said.

The statement specified that Japan "has the objective of achieving a strong domestic demanded growth and avoiding a significant increase in the external surplus."

US Treasury Secretary Mr Robert Rubin declined to comment on the ministers' views on exchange rates beyond what they said in their statement.

He said he expected "continued solid growth and low inflation" in the United States.

"We do not see any indications at the present time of a resurgence of inflation," he added.

The statement said the ministers also reviewed the "recent developments towards European Monetary Union (EMU) and discussed its implications for the G7 economies".