BOJ focus on crisis, warns against cutting too far

By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Masaaki Shirakawa said risks of economic weakness remained the bank's main concern in the face of the global financial crisis, but warned that too big a cut in interest rates in Japan could distort the market.

Shirakawa also said on Wednesday the central bank's decision last week to cut its key policy rate by 20 basis points, instead of the usual 25 points, was not aimed at leaving room for further monetary easing, as some market players have speculated.

"It's not true that we wanted to leave more room to cut rates in the future," Shirakawa told a parliamentary committee.

"We made that decision as we thought it the most appropriate."

Joining a worldwide response to the global credit crisis, the BOJ slashed its already low key interest rate target to 0.3 percent on Friday, the first rate cut in seven years.

Behind the decision were wild swings in markets that saw Tokyo's benchmark Nikkei average plunge by almost a quarter in October, its worst month ever, and the yen touch a 13-year high against the dollar.

The European Central Bank and the Bank of England are expected to cut interest rates this week after Australia slashed rates more deeply than forecast.

Appearing at a seminar before speaking in parliament, Shirakawa repeated that the BOJ was focusing on downside economic risks for the time being, as recent falls in commodity prices have diminished the risks of runaway inflation in Japan.