Finance Minister Jim Flaherty on Thursday acknowledged Canada's economy still faces major challenges but said the federal government is working to insulate the country against global financial turbulence.

Flaherty spoke to CTV's Canada AM from Tokyo, where he is attending annual meetings of the International Monetary Fund and the World Bank.

The meetings come after the IMF released a report on Tuesday downgrading its global economic outlook and warning that Canada's economy remains vulnerable to high household debt levels, and risks from the housing sector.

Flaherty said he agreed with the IMF's assessment that Canada is still vulnerable.

"We all are," Flaherty said. "In the time of slowing economic growth we've taken steps, of course, to make sure we don't have a housing bubble in Canada. We've tightened the market for mortgage insurance four times now, most recently in June, and it’s having some effect. so we're seeing moderation in the Canadian housing market, particularly the condo market in Vancouver and Toronto, which is all to the good."

In its report earlier this week, the IMF lowered its growth forecast for the world economy to 3.3 per cent this year from its July estimate of 3.5 per cent. The agency predicted the global economy will grow by 3.6 per cent in 2013, which is down from 3.9 per cent in July and 4.1 per cent in April.

Flaherty said he agrees with IMF head Christine Lagarde’s call for urgent action on Europe's debt troubles, saying Canada has been pushing for years for Europe to take robust action to address its own problems.

"I agree with Christine Lagarde and I agree with what she said," Flaherty said. "I was talking to her about it today and this is important that the IMF take that position. We've been urging Europe for years now to deal directly with the challenges, not only in Greece but elsewhere in Europe, and the need for some bank recapitalizations and dealing with sovereign debt, so I'm pleased the IMF is getting behind the push to get the Europeans to act more quickly."

Meanwhile, Canada has declined to pay into any kind of European bailout fund, saying the EU has ample resources to save itself.

Political tensions appear to be high between China and host country Japan at the Tokyo meetings. China's central bank governor Zhou Xiaochuan has declined to lead the Chinese delegation at the meetings. The decision appears to be a snub against Tokyo, likely the result of ongoing tensions over competing sovereignty claims in the East China Sea.

Flaherty said it would have been "preferable" to have Xiaochuan leading the Chinese group, due to his experience and knowledge, but said the issue is between Japan and China.