FOREX-Yen hits two-week high versus euro before G20
* Yen touches 2-week high against euro, 1-week high vs dollar
* Russia says G20 communique won't single out Japan on forex
* BOJ nominees awaited, less radical Muto seen front runner
* Euro extends falls versus dollar, hits 3-week low
By Jessica Mortimer
LONDON, Feb 15 (Reuters) - The yen hit a two-week high against the euro on Friday on speculation the next Bank of Japan governor may be less inclined to pursue aggressive monetary easing and as markets braced for a G20 summit in Moscow.
Finance officials from the G20 are expected to discuss whether the ultra-loose monetary polices of major developed countries, including Japan and the United States, depart from the group's commitment to market-driven exchange rates.
The possibility of officials expressing disapproval of Japan's policy in particular has encouraged investors to take profit on the yen's recent sharp falls as the government has pressured the BOJ to ease policy to help beat deflation.
Sources told Reuters that former top financial bureaucrat Toshiro Muto was leading the field of candidates to become the next BOJ governor.
Muto is seen as likely to pursue slightly less radical stimulus measures than some of the other contenders. A decision could come in the next few days, the sources said.
The euro fell 0.8 percent on the day to 122.90 yen on trading platform EBS, its lowest since Jan. 30, extending falls after dropping below the 21-day moving average at 123.38. Traders cited selling by long-term and Middle East investors.
Last week, the euro hit a 34-month high of 127.71.
"Reports that Muto is the favoured candidate to take over as Bank of Japan governor is the main reason for the yen's recovery," said Arne Lohmann Rasmussen, head of FX research at Danske Bank in Copenhagen.
However, he expected the yen's gains to be "relatively short-lived" given prospects of looser monetary policy.
The euro also remained under pressure a day after figures showed the euro zone sinking more deeply into recession than expected and the currency dropped to a three-week low against the dollar.
It fell 0.3 percent to $1.3311, its lowest since Jan. 24, with traders saying stop loss less orders were triggered on the drop below $1.3320. More stops were cited below $1.3300.
European Central Bank President Mario Draghi criticised recent "chatter" on currencies and said the euro's exchange was in line with long-term averages. Like ECB policymaker Jens Weidmann, who spoke earlier, Draghi resisted pressure from some euro zone politicians to target the euro's exchange rate on the grounds it is overvalued.
Traders and analysts said some market participants were eager to use Muto's likely nomination as a reason to cover their short yen positions before the G20 meeting.
Speculation over what the G20 might, if anything, G20 officials might say about Japan has been swirling all week.
Russia's finance "sherpa", Deputy Finance Minister Sergei Storchak, said the drafting discussion was proving "difficult", but the final text would not single out Japan for criticism.
The dollar was down half a percent at 92.46 yen, having hit a one-week low of 92.22 yen after breaking below stop loss sell orders at 92.50 yen.
This pulled it further from a 33-month high of 94.465 set on Monday, though solid chart support was expected at 92.00 yen.
But investors were wary about the yen resuming falls, with the BOJ still under political pressure to reflate the economy.
"There might be some differences in their willingness to take such steps as foreign bond buying, but all of the candidates are seen as continuing easy monetary policy," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank in Tokyo.
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