(Adds more comments from Tamaki)
By Hideyuki Sano
TOKYO, July 17 (Reuters) - Japan's new top financial diplomat said on Friday the U.S. dollar would remain the world's key currency and the core asset in Japan's $1 trillion of foreign currency reserves.
Rintaro Tamaki also said he would not completely rule out intervention in the markets while declining to comment on how he views current market conditions.
"It is not that we will never intervene in currency markets," Tamaki said in an interview with Reuters and other news wires after taking over as vice finance minister for international affairs earlier this week.
"Of course, currency levels should be determined by markets. That's the base line in Group of Seven (G7) statements. But if there are excessive moves, we will act with consideration for the impact on the economy."
Tamaki, an international policy veteran at the ministry, reiterated Japan's stance that the dollar should remain the key currency despite calls from some emerging countries that nations should reduce their dependence on the U.S. currency.
"The function of the key currency is broad. It is a means for transactions in the private sector. It is also a tool to store assets, with public reserves among them. At the moment, there is no alternative to the U.S. dollar," Tamaki said.
"The U.S dollar will remain the world's key currency and Japan needs to make efforts so that the system will function well," Tamaki said. Japan will stick mostly to the dollar in managing its foreign reserves, the world's second largest after China, Tamaki said.
"In light of stability in currencies, the U.S. dollar should remain at the core of our foreign reserves, and U.S. Treasuries should be at the core of our dollar assets," Tamaki said.
A large part of Japan's reserves are thought to be in dollars, although the government does not disclose details.
Some lawmakers are calling for the government to try to seek higher returns from its huge foreign reserves.
A lawmaker from the opposition Democratic Party, which is expected to oust the long-ruling Liberal Democratic Party in an election next month, told Reuters that Japan should try to boost returns by taking on credit risk.
But Tamaki said liquidity and safety would be given the greatest consideration.
"We should seek higher returns while making sure reserves have liquidity and safety. There will be a certain limit in seeking returns," he said.
Tamaki also said the world economy is still in severe conditions and and it is not time to exit from a barrage of policy measures to support the economy throughout the world.
"Because various measures have been taken so far, each country recognise the needs to prepare exit strategies from them. But it is not the time now to carry out them," Tamaki said. (Reporting by Hideyuki Sano; Editing by Hugh Lawson)