* BOJ must respond to shock that triggers recession - Sakurai

* Adds shouldn't rush into easing if overseas slowdown moderate

* Sees no need to ease now despite talk of fiscal spending

* Must be mindful of flattening yield curve - Sakurai (Recasts with quotes from news conference)

By Leika Kihara

KOBE, Japan, Nov 27 (Reuters) - Japan's central bank can hold off expanding stimulus for now as robust domestic demand offsets the hit to exports from overseas risks, its board member Makoto Sakurai said, suggesting no additional easing was likely in the near-term.

Sakurai, known for his more conservative views on aggressive monetary easing, instead called for the Bank of Japan (BOJ) to pay more attention to the negative impact of prolonged easing.

The former academic said the imminency of additional easing has subsided compared with around September, when fears of a bigger-than expected slowdown in China's economy clouded the outlook.

"Looking at the current state of Japan's economy, things aren't deteriorating further," Sakurai told a briefing after meeting business leaders in Kobe, western Japan, on Wednesday.

"I don't see a need now to move pro-actively now. Now is the time to closely watch economic developments," he said, suggesting that the central bank was likely to keep policy steady at its rate review next month.

The BOJ kept policy steady last month but gave the strongest signal to date that it may cut interest rates in the near future, underscoring its concern that overseas risks could derail a fragile economic recovery.

Many analysts, however, believe the threshold for more rate cuts is high due to the rising side-effects of prolonged easing, such as the strain years of ultra-low interest rates are inflicting on financial institutions.

Sakurai, among the BOJ's nine board members, said the central bank may need to deploy all available tools if Japan is hit by a severe shock that disrupts its banking system.

However, he saw no immediate need for the central bank to match government's plans for fiscal stimulus with even looser monetary policy, as current BOJ settings were already extremely accommodative.

That leaves maintaining the BOJ's current stimulus programme as the best approach for now along with closely monitoring how commercial banks cope with prolonged ultra-low rates.

"In guiding monetary policy, there's an increasing need to be mindful of the side-effect of continuing our low-rate policy such as that on Japan's banking system," Sakurai said.