Japan warns of 'consequences' in US debt battle

Japan's finance minister and top central banker on Friday urged Washington to resolve its political gridlock, warning a debt default could lead to grim "consequences" for the global economy.

The present impasse, where the refusal of a right-wing rump of the Republican Party to pass a budget bill has resulted in a government shutdown, is already affecting the currency markets, Finance Minister Taro Aso said, warning it could worsen.

"I think this could likely result in a situation where the dollar will be sold and the yen will be bought," Aso told reporters.

The yen has already soared to multi-month highs against the dollar, as traders move out of the greenback and into the safe haven of the Japanese currency.

The falling dollar is bad news for Japan's exporters, a key driver of growth in the world's third-largest economy, because it erodes their repatriated profits.

The Japanese unit was changing hands at 97.08 to the dollar in late Asian trade.

But, "my feeling is... The debt limit will have an internationally significant impact," Aso said, referring to a looming October 17 deadline by which the US government needs lawmakers to raise the ceiling on the amount of money it can borrow.

"Unless it is resolved swiftly, we will see various consequences."

Japan is a major holder of US government debt.

Bank of Japan governor Haruhiko Kuroda echoed Aso's concerns, but said if the emotionally-charged standoff could be resolved quickly, it need not derail the fledgeling US economic recovery.

Kuroda, a former head of the Asian Development Bank, said speed was of the essence because uncertainty would put a strain on global growth.

"If a situation like this becomes prolonged, it might have a serious impact on the US economy and the world economy," Kuroda said.

"By resolving this issue as quickly as possible, I hope they will dispel uncertainty about US fiscal policy," he said.