* Yen hits 7-month high against dollar before pulling back
* Yen's gains a test of nerves for MOF,new Democrat-led govt
* Democrats may favour strong yen, but lack experience
By Stanley White
TOKYO, Sept 14 (Reuters) - Japan's top finance bureaucrat Yasutake Tango said on Monday that officials are watching currency moves closely but declined to comment on specific levels.
The yen briefly hit a seven-month high against the dollar on Monday, while the greenback fell broadly last week as investors bet interest rates in the United States will remain low.
The yen's recent gains will likely prove a test of nerves for Japan's currency officials as the largely untested Democratic Party prepares to take control of the government on Wednesday.
"We are monitoring the foreign exchange market carefully," Vice Finance Minister Tango told reporters at a briefing.
"However, I would like to refrain from commenting on specific currency levels."
The dollar fell to a seven-month low of 90.18 yen earlier on Monday but later reversed course as speculators covered short positions. Last week the dollar index, a gauge of the greenback's performance against six major currencies, slumped to a one-year low as investors shifted funds into higher-yielding assets.
Hirohisa Fujii, a Democratic Party lawmaker who may become the country's new finance minister, has said a strong currency is good for Japan because it increases consumers' purchasing power and the government shouldn't intervene unless rates move abnormally.
That would mark a departure from the outgoing Liberal Democratic Party, which intervened heavily earlier in the decade to stop a rising yen from harming Japan's exports. Officials haven't intervened since March 2004, which was the end of a 15-month long spree in which they sold 35 trillion yen ($387 billion) to protect economic growth.
Other Democratic Party lawmakers have also made comments suggesting they would rather let the yen strengthen to benefit households than to weaken the currency for the sake of the country's major exporters. Still, analysts say they are unsure how the Democratic Party, which has never governed before, will react to a rising yen once they are in power.
Voters swept the Democratic Party to a landslide victory in a national election on Aug. 30. (Editing by Chris Gallagher)