UPDATE 1-Japan tells U.S. can't link monetary policy to trade - finmin Aso

Japanese Finance Minister Taro Aso said on Thursday he told U.S. Treasury Secretary Steven Mnuchin that Tokyo cannot accept discussions that link monetary policy to trade issues. The two countries also agreed that exchange-rate matters would be discussed between financial authorities, Aso told reporters after a meeting with Mnuchin.

"I told him that Japan cannot agree to any debate linking trade policy with monetary policy," Aso said. "Japan won't discuss exchange-rate matters in the context of trade talks," Aso said. He declined to comment when asked whether Washington made demands to include a currency provision in trade deals between the two countries.

Aso and Mnuchin held their bilateral meeting ahead of a summit between Japanese Prime Minister Shinzo Abe and U.S. President Donald Trump in Washington on Friday. Mnuchin had said in the past that Washington would like to include a provision to deter currency manipulation in future trade deals, including with Japan, which has resisted the idea.

Currencies are a touchy issue for Japan because it has been criticized for keeping the yen low with massive monetary easing. Tokyo has argued that its policy easing is aimed at achieving its 2 percent inflation target, not at gaining export advantage by weakening its currency. (Additional reporting by Leika Kihara in Tokyo Editing by Chizu Nomiyama)