BOJ's Shirakawa says deflation, low rates to stay

By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Masaaki Shirakawa said on Wednesday that the central bank will maintain its very easy monetary policy and that the country's economic pick-up is likely to remain moderate.

The BOJ last week decided to begin withdrawing from credit markets but extended a key loan scheme, earning grudging backing from the finance minister who had criticised the central bank's economic outlook as too optimistic.

Shirakawa told a forum on Wednesday that stronger than expected growth in emerging nations meant the risks to Japan's economy have become more evenly balanced than early in the year, when the BOJ was focusing on downside risks to the economy.

But he said the BOJ was sticking to a cautious view on the economy because corporate activity remained at low levels and deflation was likely to persist for some time.

"Downward pressure on prices will remain for quite a long time because the lack of demand is unprecedented, and the pace of recovery in the economy will be slow," Shirakawa told a forum.

He said, however, that the possibility of price falls hurting the economy was low for now.

Shirakawa also said the central bank's decision last Friday to end its commercial paper and corporate bond buying in December did not mean there was a change in its monetary policy stance.

"The BOJ will maintain a very accommodative monetary conditions."