By Leika Kihara

TOKYO (Reuters) - The Bank of Japan should expand monetary stimulus if necessary and should not consider U.S. President Donald Trump's accusation of currency manipulation as an obstacle to doing so, a former International Monetary Fund executive said.

The central bank may not have much ammunition left to fight any abrupt rise in the yen, after more than three years of huge money printing, said Naoyuki Shinohara, an IMF deputy chief from 2010 to 2015.

But Trump's criticism over Japan's monetary policy should not act as a hindrance if the BOJ sees the need to expand stimulus to support the economy, he told Reuters on Wednesday.

"When necessary, the BOJ should take action," said Shinohara, formerly Japan's top currency diplomat.

The weak yen is among the few successful channels in which the BOJ's stimulus helped the economy, though consumption and investment still lack momentum, said Shinohara, currently a University of Tokyo professor.

"That's why the BOJ's policy may be interpreted as currency devaluation. But the BOJ's policy is clearly aimed at beating deflation and the yen's weakening is just a side-effect," he said. "It would therefore be puzzling for anyone to say the BOJ should stop easing."

Asked whether yen-selling intervention could become an option if the yen keeps rising in the wake of Trump's remark, Shinohara said: "Intervention probably won't be too effective."

Currency intervention is effective in addressing short-term, abrupt moves in exchange rates, which is not what is happening now, he added.

The dollar was on the defensive after Trump and trade adviser Peter Navarro criticized China, Germany and Japan, saying they were devaluing their currencies to the disadvantage of the United States.

Japanese policymakers hit back at Trump's accusation, stressing that Tokyo was abiding by a Group of 20 agreement to refrain from competitive currency devaluation.

Tokyo considers a strong yen as negative for Japan's economy as it hurts exports, and worries that a reversal of the recent weak-yen trend could weigh on a fragile recovery.

Japan has not intervened directly in the currency market since November 2011. However, the weak yen has been considered as one of the few successes of Prime Minister Shinzo Abe's "Abenomics" stimulus policies aimed at pulling the economy out of deflation.

(Reporting by Leika Kihara; Editing by Richard Borsuk)