* Dollar touches 106.14 yen, lowest in 18 months

* Japanese officials reported to be frustrated with yen's strength

* U.S. Treasury puts Japan on new 'Monitoring List'

* Euro/dollar hits 6 1/2-month high

By Ian Chua and Hideyuki Sano

SYDNEY/TOKYO, May 2 (Reuters) - The yen touched a fresh 18-month high against the greenback early on Monday after its biggest weekly gain in over seven years as traders bet that Tokyo policymakers have limited capacity to stem the yen's gains.

The dollar fell as far as 106.14 yen, breaking through Friday's trough of 106.27. It slumped nearly 5 percent last week - a percentage fall not seen since 2008 - after the Bank of Japan refrained from adding fresh stimulus.

Finance Minister Taro Aso was quoted in Japanese media over the weekend as being unhappy with the yen's strength, saying it was "extremely concerning".

Yet many traders doubt Japan can intervene in the market given Tokyo appears to have limited support.

"For many emerging economies and dollar-pegged countries, a strong dollar was risk for them and a weaker dollar was the easiest solution. In short, most G20 countries do not want a strong dollar," said Makoto Noji, senior currency and fixed income strategist at SMBC Nikko Securities in Tokyo.

In Washington the U.S. Treasury Department said in a report to Congress that it was creating a new "Monitoring List" that includes China, Japan, Korea, Taiwan, and Germany which all have a large current account surplus.

The monitoring would closely watch and assess the economic trends and foreign exchange policies of these economies.

The U.S. Treasury noted that "current conditions in the dollar-yen foreign exchange market are orderly" - widely interpreted as a caution to Japanese officials not to intervene to weaken the yen.

"In our view, it will be difficult for the BOJ to justify intervening the foreign exchange market to weaken JPY especially after the U.S. Treasury placed Japan on a new FX 'monitoring list'," said Elias Haddad, strategist at Commonwealth Bank of Australia in Sydney.

"But even if the BOJ intervenes to weaken JPY, USD/JPY is unlikely to sustain a move higher because of Japan's large current account surplus."

Given Japan's financial markets will be closed for holidays from Tuesday to Thursday, lack of buying from Japanese importers could help the dollar test a low of 105 yen, some traders said.

The euro was steadier at 122.00 yen, but still within a whisker of a three-year trough around 121.66 set last Friday.

Against the dollar, the euro edged up to a fresh 6 1/2-month high of $1.14815.