UPDATE 1-Japan wants G20 to collaborate on financial rules

* Regulation, debt crises major topics at G20 -deputy finmin

* German short-selling ban may hurt Japan econ -deputy finmin

* Says finmin Kan to attend June 4-5 G20 meeting in S.Korea (Adds quotes, details)

By Tetsushi Kajimoto

TOKYO, May 27 (Reuters) - Japan wants Group of 20 finance leaders to collaborate on financial regulation to prevent market turmoil from hurting the global recovery, a deputy finance minister said, voicing concern about the market impact of Germany's recent ban on short-selling.

Financial regulation and sovereign debt crises will be major issues at the June 4-5 meeting of finance ministers and central bankers from G20 developing and developed economies in Busan, South Korea, Naoki Minezaki told reporters.

"Now is a critical time for each country to work closely with others to develop financial regulation with mutual consent," Minezaki told reporters.

"I expect our minister to point that out, particularly at a time when the Japanese economy has been recovering steadily."

Finance Minister Naoto Kan will attend the meeting, Minezaki added.

Minezaki said Germany's unilateral move to ban certain types of short-selling shook up stock and currency markets, which in turn could hurt Japan's export-driven recovery.

"Germany's ban on short-selling had a big impact on stock markets, while Japanese exporters face a rising yen against the euro, and this causes a fund shift from stock markets to safe assets," Minezaki said.

"The trend has caused the yen to rise against both the dollar and euro, which affects stock markets in the same pattern as before."

On Thursday, the euro rallied 1.8 percent against the yen to 111.25 yen EURJPY=R, pulling away from an 8-½ year low of 108.83 yen hit on trading platform EBS on Tuesday. [FRX/]

Many Japanese exporters have set their currency assumption rates for euro/yen at 120-125 yen for the year to March. A stronger yen erodes exporters' profits when repatriated.

The Group of 20 developing and developed economies agreed last year to toughen global banking rules to make another meltdown less likely, focusing on capital and leverage standards.

Britain, Germany and France want to take that a step further and impose a tax that would pay in advance for future bailouts and let taxpayers off the hook.

Japan says there's no need for it to take such additional steps as it has already introduced a similar scheme called a deposit insurance system.

Canadian Finance Minister Jim Flaherty has tried to rally G20 members like Australia and India in opposing the idea. He took his anti-tax campaign to a G20 meeting in Washington last month and achieved what the Canadian delegation considered a coup -- the final communique had no mention of a bank tax despite strong support for the issue from some Europeans. [ID:nN18138088]