TOKYO, April 3 (Reuters) - Japan lamented the expected fall in its overseas aid ranking on Thursday, saying that its dire finances was to blame but citing the need to continue helping developing nations.

The Organisation for Economic Cooperation and Development is set to unveil official development assistance (ODA) figures for 2007 on Friday, in which Japan's spending among aid donors will slip to fifth place from third, Kyodo news agency reported.

The report would come as Japan tries to take the lead on overseas aid as it hosts a meeting of G8 development ministers this weekend and a conference for African leaders in May.

Chief Cabinet Secretary Nobutaka Machimura said cut-backs in aid in recent years was regrettable, but that the government could not ignore the difficult state of its finances.

"We need to focus on specific projects, regions and areas to have our own style of development," he told a news conference.

Japan's foreign aid grew steadily from the late 1970s as the resource-poor nation strengthened ties with resource-rich developing countries and embarked on policies to boost its international profile to match its economic power.

But the aid budget has been cut back every year since 2000/01 as Tokyo tries to curb its bulging public debt, which is by far the highest among industrialised countries.

Japan's planned aid spending for the fiscal year starting this month is 700 billion yen ($6.8 billion), down 4 percent from the previous year.

Prime Minister Yasuo Fukuda expressed hope that aid would be increased in the near future. "We need to lay the groundwork for a reversal soon," he was quoted as saying by Kyodo. ($1=102.31 yen) (Reporting by Chisa Fujioka; editing by Brent Kininmont)

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