IMF managing director Rodrigo Rato has called for China to be "more flexible" in setting its exchange rates, renewing a demand of the Asian giant's developed trading partners.

"A more flexible exchange rate regime is in the interest of China," Rato told reporters on a visit to Tokyo Monday.

The United States and other major industrialized countries accuse China of keeping its yuan artificially low to make cheaper its manufacturing exports, which have flooded foreign markets.

China in July 2005 ended a decade-long peg to the dollar in favor of a managed float and has repeatedly promised to allow its foreign exchange regime to become more flexible.

"We supported the decision of the Chinese authorities in July 2005 and we think the implementation of that decision should be taken more vigorously," Rato said.

But he stressed that the International Monetary Fund welcomed China's growth.

"It is clear that China has emerged like one of the big economic agents in the world. It is very welcome, because it has changed the face of China in terms of poverty reduction," he said.

"Looking forward we see that it will be the interest of China to rebalance its demand and private consumption," he said.

"We believe also that the market forces should play a bigger role in the allocation of resources and that the monetary policy should be allowed to be used more efficiently."

China's Commerce Minister Bo Xilai last week highlighted the urgency of cooling China's relentless export machine amid growing tensions over its ballooning trade surplus with key trading partners.

On January 17, China's currency, the yuan, closed at 7.7750, its highest point since the revaluation in 2005.

Rato also weighed in to a controversy in Japan, siding with doves cautious about lifting interest rates.

The Bank of Japan on Thursday kept interest rates unchanged at a super-low 0.25 percent, fuelling controversy that the central bank had come under pressure from the government not to raise borrowing costs.

"The most important thing for the world economy is Japan to continue in a normalized path of growth and no deflationary pressures," Rato said.

"We believe that the desired normalization of monetary policy has to take into consideration the actual data of the Japanese economy. Right now the inflationary pressure is not there, inflation is still very weak and private consumption has to gather steam," he said.

The government had argued that it was too early to tighten monetary policy as Japan was just coming out of nearly a decade of deflation. Inflation remains weak, in part because oil prices are declining.

Bank of Japan governor Toshihiko Fukui had earlier appeared to favor lifting interest rates, warning that the ultra-low interest rates were not normal when the economy was recovering.

The Bank of Japan's decision sent the yen tumbling to four-year lows against the dollar, benefiting share prices of major exporters whose products become cheaper.