TOKYO (Reuters) - Japan should not give up the right to intervene in currency markets if the yen sharply rises as it will threaten the nation's economy, a key economic adviser to Prime Minister Shinzo Abe said on Tuesday, after Britain's vote to exit the European Union caused market turmoil.

Koichi Hamada, an emeritus professor of economics at Yale University, told Reuters the Bank of Japan's monetary policy was working but stimulus steps should be expanded if the yen firms further, thus, hurting the economy.

"Japan should not give up the right to intervene in the forex market in extreme situations, namely when the yen rises sharply," said Hamada, a special adviser to the Cabinet.

Japanese authorities last intervened in the currency market in 2011 to restrain the strong yen.

The yen firmed to 99.00 yen <JPY=EBS> per dollar on Friday, its strongest against the dollar since November 2013 as investors flocked to the safe-haven currency in the wake of Brexit. It was trading around 102.00 yen on Tuesday. [FRX/]

He said the United States may not like weakening of the yen for Japan's own economic prosperity, nor would Washington be happy if Japan's monetary policy influences exchange rates.

"Japan's monetary authority has the right to smooth extreme exchange rate fluctuations by intervention, and influence over the course of exchange rate by monetary policy pursuing its macroeconomic objectives," he said.

He added that interventions should be restricted to counter abnormal moves that are regarded as created by speculators.

Shockwave on financial markets after the Brexit vote appeared to have subsided this week but Japanese policymakers remain ready to respond to a further sudden jump in the yen.

But markets are sceptical about Japan intervening in the market due to strong opposition from Washington.

U.S. Treasury Secretary Jack Lew said on Monday that market impact from Brexit has been orderly so far and unilateral action to intervene would be inappropriate.

"I think currency and stock markets overreacted to the shock caused by Brexit. I think the real effects of Brexit in the long run would not be as big as people fear now," Hamada said.

Group of Seven finance leaders vowed on Friday to continue to consult closely on market moves and financial stability and cooperate as appropriate, after Britain voted to exit the European Union.

The BOJ held off fresh easing last month but many analysts expect the central bank will adopt additional stimulus at its next policy meeting on July 28-29.

"If the job market deteriorates, the BOJ should respond with appropriate policy measures regardless of what the U.S. Treasury says," Hamada said.

(Reporting by Kaori Kaneko, Sumio Ito and Chang-Ran Kim; Editing by Jacqueline Wong)