* Finmin Kan: Stable China growth desirable for Japan
* Kan says expects frank G7 debate instead of document
* French official says forex will not be discussed
explicitly, but as part of wider economic discussion
(Adds details, background)
By Leika Kihara and Tamora Vidaillet
TOKYO/PARIS, Feb 2 (Reuters) - Group of Seven finance ministers will touch on foreign exchange issues as part of a broader economic discussion and may bring up the Chinese currency among other matters including financial reforms.
Speaking to reporters before G7 nations gather in the Arctic Canadian town of Iqaluit this weekend, a French official said currency issues would not be discussed explicitly, but within the context of talks on sustainable and balanced growth.
In a briefing in Tokyo, Japanese Finance Minister Naoto Kan said ministers could bring up the Chinese yuan, which many countries have said is undervalued, giving China an unfair export advantage and hindering more balanced economic growth.
Tokyo believes that a more flexible yuan is desirable but has been more reserved than its G7 peers in its criticism of China's currency system on the view that pressuring Beijing won't work.
"We'll deal with this issue based on our understanding that stable economic growth in China is desirable for Japan," Kan told a news conference.
Kan, who took over as finance minister last month, had earlier said he would watch any G7 debate on the yuan closely as it could affect Japan's economy, which is heavily reliant on exports to fast-growing Asian nations like China.
Canada has said the G7 may discuss the need for a more flexible yuan, among other topics, at the meeting that it will host on Friday and Saturday.
But the G7 has little leverage with China, which sits at the larger G20 table of industrial and emerging powers.
Beijing has continued to shrug off pressure from its major trading partners to let the yuan appreciate, repeating its line that stability is in everybody's best interests.
DIFFERENT SPIRIT
The spirit of this weekend's G7 gathering would shift from that seen in the past given that the Group of 20 nations was now considered the leading forum for the discussion of global economic issues, said the French official.
The G7 countries would not get bogged down in negotiating a traditional, all-embracing communique traditionally issued at the close of such meetings, he said, although it was possible that statements on specific issues could be made.
"The idea...is to have deep discussions in a tight group...and which allows us, to a certain extent, not to be hostage to what would be said publicly," he said, on condition of anonymity.
The framework for sustainable world growth, financial reform initiatives and development issues are expected to be discussed.
Banking reforms unveiled by President Barack Obama would also feature on the G7 agenda, said Kan from Japan.
"We're also likely to talk about the global economy, which has recovered from the Lehman shock, but has left many countries with fiscal burdens," he said.
Kan also expected the meeting to focus on a "frank exchange of opinions" rather than document crafting.
The G7 finance leaders are unlikely to issue a joint communique this time, after they agreed at the previous meeting in Istanbul last year to make the G7 a more informal forum of debate.
Ministers gathering in the small Arctic town are expected to spend some time discussing the future of the G7, including reducing the number of times they meet each year. (Additional reporting by Stanley White and Brian Love; Editing by Andy Bruce)