TOKYO - U.S. Treasury Secretary Timothy Geithner on Tuesday told his Japanese counterpart that a commitment by Tokyo to rely less on exports and more on domestic consumption to power growth will benefit the global economy.

According to a senior U.S. Treasury official who spoke to reporters from Singapore, Geithner told Japanese Finance Minister Hirohisa Fujii at a dinner meeting that he welcomed a commitment by Japan to shift its economy away from exports toward demand-led growth.

Geithner, making his first trip to Japan since becoming U.S. U.S. Treasury chief last January, was continuing a drive to get Asian countries, including China, to do more to spur their own economies through encouraging consumption in a bid to get global trade flows into better balance.

He arrived in Tokyo late on Tuesday afternoon and will spend much of Wednesday meeting top Japanese officials, including Prime Minister Yukio Hatoyama, before flying on to Singapore for sessions on Thursday of the 21-nation Asia-Pacific Economic Cooperation forum, or APEC.

In response to questions, the U.S. official, who spoke on condition of anonymity, said China also had a role to play by exporting less while countries like the United States begin to save more and suggested a more flexible currency would help.

I think first I'll say we welcome the commitment to move to a more flexible exchange rate over time, the U.S. official said. Flexible prices, flexible exchange rates are an important part of the process for rebalancing and are important for China.

The Obama administration has twice turned down a chance to name China a currency manipulator in reports to Congress but leaves no doubt it is in favor flexible currencies whose values fluctuate in company with the strength of their economies.

In general we favor exchange-rate flexibility...as a general economic policy, the U.S. official said.

China manages its currency's value within a narrow band against the dollar, with the result that it has not appreciated in the scale that would be expected as the dollar has declined.

That makes it more difficult for the huge trade imbalances between the United States and China to correct, and also means that other Asian countries are unable to get the export advantage that they might if China's currency rose in value and its goods became more expensive in U.S. consumer markets.

Fujii told reporters later that he and Geithner did not discuss China's currency but said he backed Geithner strong-dollar policy.

Japan has expressed concern that as the dollar weakens, its currency is becoming relatively stronger and hurts its exporters.

China on Tuesday restated its long-standing policy to maintain the basic stability of the yuan at what it considers a reasonable and balanced level. Foreign Ministry spokesman Qin Gang said China would keep improving the currency's exchange rate mechanism with a view to gradually making the yuan more flexible.

Qin added that China hoped the United States, as the most important economy in the world, would pursue a stable fiscal policy to keep the dollar's exchange rate steady and ensure its own growth and that of other nations.

The U.S. official said high U.S. unemployment underlined the continued severity of economic conditions and said it was important for all nations to keep economic stimulus measures in place as long as needed to sustain economic recovery.

The U.S. official said the United States wanted to help smaller members of APEC develop their own capital markets and said that the U.S. view was that volatility of capital flows was a bigger concern for them immediately than was the risk of new asset bubbles from rising prices.

(additional reporting by David Lawder in Washington)

(Reporting by Glenn Somerville; Editing by Victoria Main)

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