WRAPUP 3-Japan finmin asks BOJ to ease, yen in danger zone

* Yen remains stubbornly high vs dollar

* Strong currency threatens Japan economy

* BOJ Yamaguchi: no need to ease now in response to yen

* Fed pledge for low rates undermines efforts to weaken yen

By Stanley White and Leika Kihara

TOKYO/TAKAMATSU, Japan, Feb 2 (Reuters) - Japan's finance and economic ministers piled pressure on the Bank of Japan on Thursday to consider easing policy further, as the yen climbs back to levels that led to Tokyo to intervene heavily in currency markets last year to protect its export-reliant economy.

BOJ Deputy Governor Hirohide Yamaguchi said he saw no need to ease policy right away, but the central bank could face growing calls to offer more monetary stimulus to help exporters through any prolonged slump, even though it has limited options remaining to support the faltering economy.

"Yen buying has strengthened, led by short-term and speculative moves on the back of expectations for low interest rates in the U.S. until 2014," Finance Minister Jun Azumi told lawmakers.

"I would like the BOJ to take account of economic conditions and various factors in deciding policy, including quantitative easing."

Economics Minister Motohisa Furukawa also called on the central bank to ensure that real interest rates remain low, as the Federal Reserve's commitment to keep its nominal benchmark rate near zero for nearly three more years pushes the dollar lower against the yen.

Under the BOJ's initial round of quantitative easing, a technique it pioneered, it flooded the financial system with cash from 2001 to 2006 by targeting the size of current account deposits that commercial banks park at the central bank.

Since the U.S. subprime mortgage crisis, economists have used the term more loosely to describe central bank purchases of government bonds and other assets to lower interest rates and expand balance sheets.

The dollar traded around 76.17 yen on Thursday, having slid to 76.00 the day before. That was not far off a record low of 75.31 plumbed on Oct. 31, when Japan intervened heavily to curb the yen's strength.

The BOJ, like the Fed and the Bank of England, has turned to the broader form of quantitative easing since the subprime crisis by purchasing Japanese government bonds and some riskier assets such as exchange-traded funds.

The BOJ says the size of its balance sheet, when compared to Japan's gross domestic product, shows its policy is accommodative.

The central bank's detractors argue that traders are not focusing on the ratio of the BOJ's balance sheet to GDP, and that the rate of expansion of other central banks' balance sheets shows the BOJ is not keeping up pace with them in such areas as easing monetary policy and expanding the balance sheet.

"I don't know what the finance minister meant by calling for quantitative easing, but policymakers want the BOJ to lower real interest rates to weaken the yen," said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"To achieve this, the BOJ should either push nominal rates lower or make a stronger commitment to low rates for a longer term, as the Fed did."

RATES ALREADY NEAR ZERO

Japan is unique among major economies because its persistent deflation means real interest rates are higher than nominal rates.

This means the BOJ's pledge to keep nominal interest rates near zero until prices rise around 1 percent does not gain as much traction in the economy and has less influence over currency markets.

In the past, the BOJ has been sceptical of a return to its earlier form of quantitative easing that targeted current account deposits. Now the central bank focuses on the size of its asset purchase scheme.

Yamaguchi ruled out any immediate action but stressed that the central bank is mindful of uncertainties on the outlook, signalling its readiness to ease again if Japan's recovery prospects are threatened.

"If recent yen rises are sustained we need to carefully assess their impact on the economy and prices, but I do not think there is a need to immediately take policy action in response to recent yen rises," he told reporters in Takamatsu, southwestern Japan.

BOJ Governor Masaaki Shirakawa tried on Thursday to deflect lawmakers' criticism that he is out of step after the Fed said it expected exceptionally low rates at least until late 2014 and adopted a 2 percent inflation target.

It could become more difficult for the BOJ to defend its monetary policy should the Fed's stance push the dollar lower versus the yen as the year progresses.

Azumi hinted at solo intervention earlier on Thursday, but the appeal of this policy response could be diminishing.

Japanese authorities sold a record 9.09 trillion yen on currency intervention in the month to Nov. 28, when the yen jumped to a record high, according to finance ministry data.

In August, Japan sold 4.5129 trillion yen in currency intervention, far exceeding the 2.125 trillion yen it sold on Sept. 15 last year.

The U.S. Treasury criticised these solo interventions in a report last year, saying markets were not moving in a disorderly manner. Other Group of Seven countries take a dim view of solo intervention, which could make Japan hesitant to use the tactic this year.

The sheer size of the market for yen also means solo intervention is unlikely to have a lasting impact, traders and analysts have said.

Yamaguchi also said Japan must get its fiscal house in order now in case it loses market confidence in its finances in the future, warning that failure to do so could trigger a spike in bond yields and severely hurt the economy.