WRAPUP 1-Japan brushes aside FX manipulation claims ahead of G20
* Discomfort grows with Japan's monetary easing push
* Japan says easing aimed at deflation, not FX manipulation
* Yen hits 2 1/2 year low against the dollar
* Many countries favour weaker currency
* G20 an important test of Japan's financial diplomacy
TOKYO, Jan 25 (Reuters) - Japan brushed aside criticism that aggressive easing by the Bank of Japan could trigger competitive currency devaluations, saying the central bank is trying to end nearly 20 years of deflation, not manipulate the yen.
Japanese Prime Minister Shinzo Abe's calls for aggressive action by the Bank of Japan (BOJ) has raised alarm in Europe and concern it could contribute to a "currency war" as other central banks adopt similar policies.
Japan may have to defend its actions at a Group of 20 meeting next month to stem the criticism of its grand plan to revive the country's economic fortunes.
"Monetary easing is aimed at pulling Japan out of deflation quickly," Finance Minister Taro Aso told reporters on Friday.
"It is not accurate at all to criticise (us) for manipulating currencies."
Japan has been trying to combat deflation for years and data on Friday provided the latest evidence of its struggle.
Japanese consumer prices excluding food and energy, a core measure of inflation, fell in December at a faster annual rate than in November.
That suggests inflation is a long way off the 2 percent target the BOJ agreed to this week after relentless pressure from Abe. It said it would adopt an open ended policy of asset buying from 2014 to help reinflate the economy.
The yen skidded to a 2 1/2 year low of 90.695 against the dollar on Friday after the release of the consumer price data reinforced expectations for more monetary easing.
Last year the yen flirted with record highs versus the dollar, a big concern for Tokyo given the economy's heavy reliance on exports.
Since early November, the yen has slumped 11 percent versus the dollar as Abe stormed to an election victory with bold promises to end decades of stop-start growth with unlimited monetary easing, a weaker yen and big fiscal spending.
"Considering the dollar was around 110 yen when the first G20 meeting was held after the Lehman Brothers crisis, the excessive yen strength is being corrected," Aso said.
Abe took the first step in overhauling Japanese monetary policy earlier this week when the BOJ said it will start next year open-ended purchases of assets, mostly government debt, to meet the inflation target agreed with the government.
Since the global financial crisis five years ago, central banks in the United States and Britain have engaged in aggressive monetary easing, which can help support economic growth by lowering interest rates but also tends to weaken the domestic currency.
The BOJ has also been purchasing government debt since the financial crisis, but the rapid slide in the yen has sparked concern among policymakers abroad.
German Chancellor Angela Merkel waded into the currency debate on Thursday, singling out Japan as a source of concern following the BOJ's moves.
The head of Germany's Bundesbank joined other central bankers this week in warning about the risk of competitive devaluations - countries encouraging their currencies to weaken in order to boost the attractiveness of home-grown products.
Finance ministers and central bankers are scheduled to meet in Moscow on Feb. 15-16.