* Kuroda: no limits on cash BOJ can pump into economy
* Current policies not aggressive enough, Kuroda says
* Longer-dated JGBs natural way to ramp up stimulus
* He says BOJ should try to hit inflation goal in 2 yrs
* Five-year JGB yields hit record low after Kuroda comments
TOKYO, March 4 (Reuters) - The Japan government's nominee to be the next central bank governor outlined more forceful policy prescriptions on Monday to finally defeat deflation, saying he would not set any limits on the amount of cash the Bank of Japan pumps into the economy.
Underlining expectations he would be an aggressive governor, Haruhiko Kuroda told lawmakers the BOJ's current policies were not powerful enough to boost inflation to 2 percent, a target he said the central bank should strive to achieve in two years.
Kuroda suggested the most natural way to ramp up the central bank's stimulus for the economy would be through huge purchases of longer-dated government bonds. The BOJ should also consider kicking off its open-ended asset purchases early, rather than waiting until the scheduled start date of 2014.
"It would be natural for the BOJ to buy longer-dated government bonds in huge amounts," Kuroda said in a confirmation hearing in the lower house of parliament. "But the central bank also needs to scrutinise market developments at the time, as well as the potential drawbacks."
Prime Minister Shinzo Abe nominated Kuroda, president of the Asian Development Bank, to be the new governor in a push for bolder central bank efforts to end nearly two decades of debilitating deflation and revive the fortunes of an economy stuck in its fourth recession since 2000.
His nomination is expected to be approved by parliament because opposition parties, whose support would be needed in the upper house, have indicated they would back him.
The prospect of the BOJ buying longer-dated bonds prompted a market rally, led by the longer end. Yields on 20-year bonds dropped to 1.49 percent, their lowest level since 2003. Yields on 5-year debt hit a record low of 0.095 percent.
Japan's former top currency diplomat, Kuroda, 68, would replace incumbent Masaaki Shirakawa, 63, who is due to leave office on March 19 at the end of his term along with his two deputy governors.
Under Shirakawa, the BOJ has agreed to buy assets or make loans totalling 101 trillion yen ($1 trillion) by the end of this year, part of which includes buying government bonds with a maturity of up to three years.
It said in January it would switch to open-ended asset buying from 2014 to achieve the 2 percent inflation target.
Abe has also nominated academic Kikuo Iwata, who supports unconventional monetary policy, and BOJ official Hiroshi Nakaso, who has hands-on knowledge of the central bank's inner workings, as deputy governors.
The prime minister's demands for bolder action have pushed the yen to a three-year low and the stock market to a four-year high as investors anticipated much looser policies.
The risk now was failing to meet expectations, Iwata said at a seminar.
"If the BOJ doesn't show that monetary policy has changed, there's a risk that these market moves will unwind," he said, adding that only monetary policy can change inflation expectations.
If Kuroda's nomination is approved, his first regularly scheduled policy review would be on April 3-4.
The BOJ faces a tough task. Inflation has rarely peaked above 2 percent since the early 1990s and policy board members are divided on the best way forward.
While Kuroda says the central bank should strive to reach 2 percent inflation in two years, Iwata last week was quoted in Diamond magazine saying it could take up to 5 years.
Board member Takahide Kiuchi, who dissented in January against the decision to set the target, said no deadline should be set.
Kuroda acknowledged international concerns over Japan's monetary policy and worries a sliding yen could spark competitive currency devaluations.
"There's evidence that currencies tend to fall for countries that ease monetary policy on a large scale ... But the BOJ's policy is not targeting currencies," Kuroda said.
"The important thing is to ensure price stability and achieve the 2 percent price stability goal, although it could affect currencies in that process."
Kuroda said currency levels should be determined by markets, but intervention was possible if markets greatly deviate from fundamentals.
He said that like other central banks, the BOJ should also focus on reducing long-term rates and risk premiums with the aim of increasing consumption and investment. The BOJ should not focus solely on the amount of money circulating through the economy, he said.
"Simply expanding monetary base won't be too effective," he told lawmakers.
Kuroda underlined his objections to the BOJ buying foreign currency bonds, one of the more controversial policies floated in the run up to the leadership change, saying it would be difficult for the central bank to do so on its own.
The nominations must be approved by both houses of parliament to take effect. Abe's ruling camp controls the lower house but lacks a majority in the upper house, so needs the support of opposition parties to confirm the nominations.