UPDATE 2-U.S. says Japan ready to engage on trade demands

* U.S. undecided on Japan's Trans-Pacific Partnership bid

* Detroit car firms oppose Japan joining talks

* Tuesday meeting was first formal consultation (Adds details, paragraphs 8-13)

By Doug Palmer

WASHINGTON, Feb 7 (Reuters) - Japanese trade officials on Tuesday assured the United States they were prepared to discuss key U.S. trade demands if allowed to join talks on a regional free trade agreement in the Asia Pacific region, the U.S. Trade Representative's office said.

"Japanese officials underscored the Japanese government's readiness to engage with the United States on a range of issues going forward," USTR spokeswoman Carol Guthrie said in a statement. "As a next step, both governments agreed to hold a follow-up meeting at the working level on February 21-22 in Washington, D.C., as the consultative process continues."

Japan is pressing to join the United States and other countries in talks on the proposed Trans-Pacific Partnership (TPP) pact, but faces strong opposition from Detroit auto manufacturers who say they do not believe Tokyo is really prepared at this time to open its market to more car imports.

The Obama administration is consulting with Congress, business and organized labor as it makes up its mind whether to support Japan, Canada and Mexico's bid to join the TPP talks, which now include the United States, Australia, New Zealand, Chile, Peru, Singapore, Malaysia, Vietnam and Brunei.

"We have to go through a very deliberative process," U.S. Trade Representative Ron Kirk told Reuters in a recent interview. The current TPP members are entertaining the three countries' interest "and frankly giving them the concerns of our stakeholders over the next several months," he said.

"But we've also agreed we aren't going to slow down on our work to ... conclude this agreement this year, as our leaders have asked us to do," Kirk said, referring to a goal set in November by U.S. President Barack Obama and other heads of the TPP countries.

Some members of Congress - especially from auto-producing states such as Michigan - also share Detroit's concern about Japan joining the negotiations, since it could lead to an agreement requiring the United States to eliminate remaining tariffs on Japanese auto imports.

Tuesday's meeting was the first formal consultation between the two sides since Japanese Prime Minister Yoshihiko Noda expressed Japan's interest in November in joining the TPP.

Wendy Cutler, assistant U.S. trade representative for Japan, Korea and APEC Affairs, co-chaired the talks along with Takeshi Yagi, director general for economic affairs in Japan's Foreign Ministry.

Outside the U.S. auto sector, most U.S. farm and business groups support Japan's joining the negotiations if that can be done without slowing down the TPP talks or lowering the overall market-opening ambition of the pact.

A Japanese newspaper reported earlier this week that Japan would seek exceptions for some items like rice, but otherwise was prepared to negotiate on all goods and services.

Japanese farmers were enraged in November when U.S. officials said Tokyo had agreed to include all goods.

In Tuesday's meeting, Japanese officials reported on their consultations with domestic groups and other TPP partners, the U.S. Trade Representative's office said. U.S. officials outlined the status of the TPP talks and issues raised by U.S. stakeholders in areas such as autos, agriculture and insurance, the trade office said. (Reporting By Doug Palmer; Editing by Will Dunham)