TOKYO, June 23: The US dollar rose more than half a yen on Monday after the weekend meeting of leaders of the Group of Seven (G7) nations ended with the issue of Japan's trade surplus being little more than an afterthought.

But the United States repeated its warning on Japan's burgeoning trade surplus, a factor which could weigh on the greenback in the medium term, currency dealers said. They said traders rushed to buy-back dollars, which they had sold before the meeting on worries that the G7 might single out Japan over its trade practices. But those fears proved to be unfounded as the G7 did not make any strong statement on Japan's trade surplus.

"The points made on currencies at the summit were within market expectations and led to buying back of dollars to cover their positions," said Yasuhiro Kawashima, chief manager of foreign exchange at Toyo Trust & Banking Co Ltd.

The dollar stood near 115.35 yen in late afternoon Tokyo, up from 114.85 yen in late New York trade on Friday.

The G7 nations said in a joint statement at the end of the two-day meeting on Sunday that Japan needs to spur strong domestic demand-led growth, avoid a significant increase in its external surplus, deregulate and enact structural fiscal reforms.

The statement also asked finance ministers of the G7 nations — Britain, Canada, France, Germany, Italy, Japan and the United States -- to continue close cooperation on economic policy and in financial markets.

A senior Japanese official attending the summit in Denver, Colorado, told Reuters that the G7 agreed on nothing more or less on currencies than its finance ministers did in April. But dealers said worries over Japan's trade surplus have not been completely erased in the currency markets after warnings from the US side.

Speaking after the close of G7 summit, US president Bill Clinton on Sunday expressed concern that Japan's decision to try to pursue a path of fiscal austerity ran the risk of going back to the old export-driven strategy of growth.

"If we return to a time when we've got exploding trade deficits then that will once again move front and centre into our relationship in a way that won't be good for either country," said Clinton.

Koichi Murakami, senior manager of the financial engineering department at Sumitomo Trust & Banking Co Ltd, said US authorities would keep a close watch on Japan to make sure it kept its word on achieving domestic demand-led growth.

"It seems that in the coming three or four months, the United States will monitor whether Japan can actually achieve domestic demand-led growth," he said.

Toshiaki Enomoto, a manager at Sanwa Bank Limited, said: "Although the G7 statement was in line with market expectations, it indicated that Japan's trade surplus is becoming an international concern and I think this issue will remain a problem in the future and keep the dollar's topside heavy."

Both US treasury secretary Robert Rubin and trade representative Charlene Barshefsky have recently reiterated their concerns over Japan's mounting surplus.

In May, Japan's trade surplus more than trebled from a year earlier to 738.27 billion yen ($6.41 billion), while its surplus with the United States alone soared 93 percent to 322.87 billion yen ($2.80 billion).

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.