Japan will urge more decisive action by Europe to contain its debt crisis at a Group of Seven finance chiefs' meeting and annual IMF and World Bank gatherings in Tokyo next week, the country's top financial diplomat said on Wednesday.

Takehiko Nakao, vice minister of finance for international affairs, also said Japan would keep in close communication with the United States and Europe on currencies and it was ready to intervene in markets to counter excessive yen gains.

He praised the euro zone for what it had accomplished so far in dealing with the bloc's debt crisis and called for sustained efforts.

"They have made a lot of progress. What I can say is that they should continue to take decisive action to implement things which will sustain and strengthen the economic and monetary union of Europe," Nakao told Reuters in an interview. He didn't spell out what he meant by decisive action.

The euro zone crisis, the U.S. fiscal problems and a slowdown in economic growth in China and other emerging countries will dominate the agenda of the G7 meeting on October 11 on the sidelines of separate meetings of the International Monetary Fund and World Bank, Nakao said.

He said yen strength was the result of investors seeking the currency as a safe-haven investment and he reiterated Tokyo's long-held position that it was too strong considering Japan's economic conditions.

"The position of the Japanese government remains intact that if there's excessive movement in the exchange rate market, when necessary we'll take decisive action," he said.

Nakao sounded optimistic about China, saying that the country is likely to achieve high growth led by domestic demand even though it faces a slowdown due to sluggish exports and past policy tightening to fight inflation. He didn't explain what he meant by high growth.

Nakao said the two Asian economic powers should not reverse their financial cooperation because of their territorial row over a chain of East China Sea islands.

"There's no signal that we would reverse. I have been in close communication with China and I hope we can continue to deepen cooperation in this area too."

(Editing by Neil Fullick)