* Finmin Kan: markets should determine forex levels
* Kan: job of finmin to intervene if necessary
* Kan: govt must pay heed to business community
* PM says govt shouldn't comment on forex
* PM: Kan was talking about how business felt on yen (Adds context, background)
By Leika Kihara and Tetsushi Kajimoto
TOKYO, Jan 8 (Reuters) - Japan's new finance minister backed off his call for a weaker yen following an apparent rebuke from the prime minister on Friday, saying currency levels should be determined by markets.
Still, Naoto Kan said the government should pay heed to the views of the country's business community, signalling that he was sticking to the view of favouring a weaker yen to boost the competitiveness of Japanese exports.
"Currencies undoubtedly should be determined by markets," Kan told a news conference. "But I also believe that generally speaking, it's the finance minister's job to act against currency moves when needed."
The yen has fallen sharply since Thursday when Kan called for the currency to weaken. It gyrated in response to Kan's latest remarks, but has otherwise dropped 1.6 percent to a four-month low of 93.78.
Kan, 63, was named finance minister on Wednesday, replacing 77-year-old Hirohisa Fujii, who stepped down for health reasons.
Kan jolted markets in his first press briefing as finance minister on Thursday, saying he hoped the yen would weaken further and that he would work with the Bank of Japan to achieve an appropriate exchange rate level.
The comment stirred speculation he would be more inclined to support official intervention -- last seen in 2004 -- if the currency is deemed too high.
He said many Japanese firms were in favour of having the dollar move around 95 yen. That contrasted with Fujii, who had indicated he favoured a strong yen.
It is extremely rare for a finance minister to refer to specific exchange rate levels and Kan's comments earned a rebuke from Prime Minister Yukio Hatoyama, who said on Friday the government should not comment on currency rates.
"The government should basically not comment on foreign exchange," he told reporters.
An effort by Hatoyama's Democratic Party of Japan to put politicians, not bureaucrats, in charge of policy has opened the door to confusing, if not conflicting, remarks by cabinet ministers on various topics, prompting criticism the government's decision making lacks clarity.
GLOBAL CURRENCY TENSIONS
Kan's yen comments may not sit well either with some of Japan's peers in the Group of Seven, which has been promoting currency flexibility to try to fix global economic imbalances.
Indeed, France said it would put currency imbalances at the centre of its presidency of the G8 and G20 in 2011.
"Kan understands it's not a good idea to upset the United States by giving the impression that Japan would do anything to weaken the yen. He is now trying to strike a balance, although he believes in a weak yen," said Masamichi Adachi, senior economist at JPMorgan Securities Japan.
"He will likely try to avoid raising the spectre of currency intervention for the time being, but if the dollar drops below 90 yen, he may start making verbal warnings."
The world's most developed countries have struggled to resolve currency tensions which were thrown into focus by the global economic crisis, despite calls at a summit meeting in Pittsburgh last September for these issues to be tackled.
Ironing out the imbalances -- principally huge current account surpluses in countries such as China and deficits in the United States and elsewhere -- was seen by many economists as requiring a weaker dollar and a stronger yuan.
A weaker yen would provide some respite for Japan's exporters, who had to deal with a yen at 14-year highs of 84.82 per dollar in November.
The exports industry is slowly picking up and helping the world's second-largest economy emerge from its worst post-war recession. Major exporters, including Honda Motor Co, have complained about the high level of the yen.
The Bank of Japan's influential tankan corporate sentiment survey in December showed Japanese big manufacturers expected the dollar to be 91.16 yen on average over the six months to March.
Since being named as finance minister on Wednesday, Kan has also faced scepticism from the bond market that he will keep as tight a rein on spending as his predecessor.
As national strategy minister before his appointment Wednesday, he had overseen the budget process and set fiscal priorities.
Last year, he called for a stimulative budget for the fiscal year from April 1 to avert the risk of Japan slipping back into another recession.
He said on Friday he was mindful of fiscal discipline while stressing the need to balance the restoration of the country's fiscal health with spending to support the economy.
A weaker yen, high share prices and doubts about Kan's commitment to fiscal discipline, helped send 10-year Japanese government bond futures to their lowest since mid-November. (Additional reporting by Rie Ishiguro; Editing by Neil Fullick)