By Tetsushi Kajimoto

TOKYO (Reuters) -Japan and South Korea will hold their first bilateral finance dialogue in seven years on Thursday, with both looking to mend strained ties as they face common geostrategic risks from an increasingly assertive China and an unpredictable North Korea.

Japanese Finance Minister Shunichi Suzuki and his South Korean counterpart, Choo Kyungho, are expected to agree on the need to restore a lapsed bilateral currency swap arrangement, according to three government officials with knowledge of the agenda for the talks in Tokyo.

The swap deal expired in 2015 amid worsening relations over issues related to Japan's wartime occupation of the Korean Peninsula, and its restoration would symbolise the improvement in relations, analysts say. It was never used.

The swap deal was launched in 2001 to help during a financial crisis and its size, which peaked at $70 billion in 2011, decreased starting in 2012 amid diplomatic tensions.

"We must strongly raise the momentum for historic improvement of Japan-South Korea relations. There's increased need of strengthening the bilateral ties as global and regional economies face major uncertainty and risks," Masato Kanda, vice finance minister for international affairs, told reporters.

"It's our ambition to create for the first time a package of promotion of cooperation in broader areas ... while the bilateral currency swap is also a target of discussion in the process of this time," he said ahead of the talks.

The ministers will also discuss global economic developments, infrastructure investment in developing countries, and the role both countries could play in multilateral financial cooperation.

"Japan and South Korea are important neighbours that must cooperate to address various challenges surrounding the global economy, as well as the regional and international community," Suzuki said at a brief meeting with Choo last month. "We're experiencing incidents like North Korea's nuclear missile development and Russia's invasion of Ukraine. Japan sees these as unacceptable, and something the two countries must address together."

The bilateral finance talks, the eighth of their kind, were last held in 2016. They were to supposed have taken place every year under a 2006 agreement on shuttle diplomacy.

(Reporting by Tetsushi Kajimoto; Editing by Leika Kihara, Simon Cameron-Moore and Gerry Doyle)