By Osamu Tsukimori and Aaron Sheldrick

TOKYO (Reuters) - Japan's use of nuclear power is unlikely to meet a government target of returning to near pre-Fukushima levels and the world's No.3 economy needs to get serious about boosting renewables, a senior executive at a top business lobby said.

Under Prime Minister Shinzo Abe's energy policies, nuclear is supposed to supply a fifth of energy generation by 2030, but Teruo Asada, vice chairman of the Japan Association of Corporate Executives, said Japan was unlikely to get anywhere near this.

The influential business lobby has issued a proposal urging Tokyo to remove hurdles for renewable power amid the shaky outlook for nuclear power after the 2011 Fukushima disaster.

The move shows how business attitudes are now shifting as reactor restarts get held up by legal challenges, safety issues and public scepticism.

"We have a sense of crisis that Japan will become a laughing stock if we do not encourage renewable power," said Asada, who is also chairman of trading house Marubeni Corp.

Long dependent on imported fossil fuels, Japan's government and big business actively promoted nuclear energy despite widespread public opposition.

The government wants nuclear to make up 20-22 percent of electricity supply by 2030, down from 30 percent before Fukushima. So far, however, only two out of 42 operable reactors have started and the newly elected governor of the prefecture where they are located has pledged to shut them.

Renewables supplied 14.3 percent of power in the year to March 2016 and the government's 2030 target is 22-24 pct.

"In the very long term, we have to lower our dependence on nuclear. Based on current progress, nuclear power reliance may not reach even 10 percent," said Asada, adding the association wanted measures to encourage private investment in renewables and for public funding of infrastructure such as transmission lines.

The influential business lobby has a membership of about 1,400 executives from around 950 companies.

Andrew DeWit, a professor at Rikkyo University in Tokyo focusing on energy issues, said the push signaled "a profound change in thinking among blue-chip business executives."

"Many business leaders have clearly thrown in the towel on nuclear and are instead openly lobbying for Japan to vault to global leadership in renewables, efficiency and smart infrastructure."

When asked about the association's proposals, an industry ministry official said the government was maintaining its nuclear target.

"The Japanese government will aim for the maximum introduction of renewable energy but renewable energy has a cost issue," said Yohei Ogino, a deputy director for energy policy.

But three sources familiar with official thinking told Reuters in May that Japan will cut reliance on nuclear power when it releases an updated energy plan as early as next year.

Following the nuclear reactor meltdowns at Fukushima in 2011, Japan has had some success in overcoming one of the world's worst peacetime energy crises, partly due to lower oil prices and liquefied natural gas (LNG) prices.

Japan has also promoted renewables but most investment has been in solar and in recent years it has cut incentives.

"There are too many hurdles for other sources of renewable power," Asada said.

(Editing by Ed Davies)