UPDATE 1-U.S. Treasury-low Japan yen value stems from deflation

(Adds quotes, details, background)

WASHINGTON, May 9 (Reuters) - A senior U.S. Treasury Department official said on Wednesday the low value of Japan’s yen was caused by a lengthy bout of deflation from which Japan still is recovering, not from manipulation.

“The yen’s real effective value is the result of a protracted bout of deflation in the Japanese economy that coincided with rising prices in the United States and other trading partners of Japan,” Deputy Assistant Treasury Secretary Mark Sobel said in prepared remarks for delivery at a hearing in the U.S. House of representatives.

He said Japanese officials have not intervened in currency markets to affect the yen’s value since March 2004 and said it was important for the rest of the world that Japan have time to regain more economic vigor.

“The recovery has been under way for several years, but it has not been brisk and it has not yet gathered steam,” Sobel said.

“One of the most important contributions Japan could make to the global economy, and to U.S. firms and workers, would be to resume sustainable and robust domestic demand growth and exit completely from deflation,” Sobel said.

At the same hearing, General Motors Corp. GM.N blamed the loss of 300,000 U.S. jobs since 2000 on a cheaply valued yen that they claim has given Japanese-made cars an unfair price advantage over comparable American products.

Japan's Toyota Motor Corp 7203.T. outsold GM in the first quarter of 2007, moving it a step closer to unseating its U.S. rival as the world's biggest automaker and that has heightened the U.S. industry's complaints against what they consider Japanese efforts to keep the yen's value low.

Sobel, who plays a key role in assembling Treasury’s semi-annual reports on currency practices of key trade partners, repeated that China was not moving rapidly enough toward a flexible currency that would let its value rise in response to its growing economic might.

He said Treasury Secretary Henry Paulson, who will play host to a delegation of top-level Chinese officials in a second round of “strategic economic dialogue” talks on May 22-24, will drive home the point that the rest of the world wants action.

“Secretary Paulson has told his Chinese counterparts repeatedly that the greater risk is in China moving too slowly,” Sobel said, “The secretary will again emphasize this message during the upcoming meeting of the strategic economic dialogue.”