* Otsuka: New govt will curb new JGB issuance in 2010/11
* To back dollar as key reserve currency
* Strong yen helps domestic demand-led growth
* Another lawmaker says best not to intervene in FX mkts (Adds comments from Okubo)
By Tetsushi Kajimoto and Sumio Ito
TOKYO, Sept 2 (Reuters) - Japan's new government will not meddle in the Bank of Japan's policy and market operations, a key lawmaker for the Democratic Party said, shrugging off speculation that it may pressure the central bank to print money to buy government debt.
The Democrats won a sweeping victory in a lower house election on Sunday, ousting the conservative Liberal Democratic Party for only the second time in more than 50 years and breaking a deadlock in parliament, where the Democrats and small allies control the upper house.
"The incoming government and the central bank got off to a smooth start," Kohei Otsuka told Reuters in an interview, one day after BOJ Governor Masaaki Shirakawa met with senior Democratic Party lawmakers.
"We won't meddle in the BOJ's policy and market operations including government bond buying," he said, adding that he appreciates the central bank's efforts to keep interest rates above zero to keep the market functioning normally.
Otsuka, 49, worked for the BOJ for 17 years until 2000, serving in sections including the policy board's secretariat, which arranges the proceedings for board meetings, liaises with the Diet and media, and carries out other work to support the board.
Otsuka is now a deputy finance spokesman for the Democrats and expected to play a key role in the new government's financial and economic policy.
He said the incoming government will try to share common values on policy management with the BOJ to stabilise financial markets.
The Democrats say they can fund spending plans mostly by cuting waste and redirecting spending, but markets worry that their promise not to raise the sales tax from the current 5 percent for the next four years will inflate an already huge public debt.
Otsuka said the new government will try to keep new government bond issuance in the next fiscal year to March 2011 below the current year's record level of $474 billion.
He also said Japan's stance of backing the U.S. dollar as the key reserve currency won't change under the new government, but he added that a strong yen will benefit Japan if it pursues a domestic demand-led economy as advocated by his party.
"We have repeatedly said Japan-U.S. relations are most important as a basic principle in diplomacy and stressed the importance of continuity in diplomacy," he said.
"So it's wrong to say we make light of the dollar and lack consideration for the United States," he added.
Whichever way currency rates swing, it brings both merits and demerits to the economy, he said, adding that the new government will respond to excessive currency moves and adhere to Japan's currency policy as before to stabilise the markets.
"The Democrats have for many years called for a domestic demand-led economy. Generally speaking, a strong yen brings more merits as it helps raise the people's purchasing power."
Another lawmaker from the party, Tsutomu Okubo, said the government should basically try to avoid intervention in currency markets.
"Whether the yen rises or falls, basically it is best for the government not to intervene. There's a limit to what intervention can do," Okubo said in a separate interview with Reuters.
Okubo, 48, is a former investment banker and is a spokesman on financial issues for the party. (Editing by Edwina Gibbs and Hugh Lawson)