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By Tetsushi Kajimoto and Sumio Ito
TOKYO, Feb 5 (Reuters) - Rapid rises in the yen may hurt Japanese exporters, but the currency's level against the dollar now is not out of line with economic fundamentals, former Finance Minister Sadakazu Tanigaki told Reuters.
Tanigaki, who served as finance minister for the three years to 2006, also said he hoped the financial heads of the Group of Seven would speak out against protectionism even though the deepening global slowdown is tempting governments to shelter domestic industries.
"The yen has risen all of sudden, and Japanese exporters have had a hard time coping with it," Tanigaki said in an interview on Thursday.
"At its current level around 90 yen (versus the dollar) it has risen rapidly from a while ago, but when I think about if it's far apart from the actual state (of the Japanese economy), it may not be," he said.
"The problem is the rapid move."
The yen rally has hammered exports and pushed the world's No.2 economy deeper into recession, with big exporters such as Toyota Motor Corp and Sony Corp slashing jobs and cutting output to cope with a global slump in demand.
The currency has gained about 20 percent against the dollar over the last year. The dollar was trading around 89.70 yen on Thursday, up from a 13-1/2-year low of 87.10 yen hit last month.
Tokyo has let off verbal volleys against sharp yen rises in the past few months, but so far Japanese officials have stopped short of saying they will intervene in currency markets, and many market players don't believe they will.
The G7 finance ministers and central bankers are expected to discuss the plight of sterling, which has lost 20 percent in value versus the euro over the past year and even more against both the dollar and yen, when they meet in Rome on Feb. 13-14.
Tanigaki, now a deputy tax panel chief of the ruling Liberal Democratic Party, said it was important for the G7 to join forces to eliminate any move that would lead to trade protectionism.
The U.S. Senate voted on Wednesday to soften a "Buy American" plan in its $900 billion stimulus bill after President Barack Obama expressed concern that the original language could trigger a trade war.
"At times like this, a protectionism movement is likely to emerge," Tanigaki said, referring to a requirement in the bill that all public works projects funded by the stimulus package use only U.S.-made iron, steel and manufactured goods.
If trade protectionism were not dealt with, the world economy could face a recurrence of the Great Depression seen in the 1930s, he warned.
Under Tanigaki, Japan's Ministry of Finance intervened heavily in the currency market, selling more than 20 trillion yen on his watch to prevent yen strength from snuffing out an economic recovery.
It has not stepped into the currency market since March 2004 when it ended that 15-month spree, in which it sold 35 trillion yen in total. (Editing by Hugh Lawson)