HIGHLIGHTS 4-BOJ Shirakawa: New ops to help lower term rates

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TOKYO Dec 1 (Reuters) - The Bank of Japan said it would pump more cash into the banking system after an emergency meeting that it called on Tuesday in the face of political pressure to help fight deflation and avert recession before upper house polls next year.

The following are key quotes from BOJ Governor Masaaki Shirakawa at a news conference after the meeting.

NEW OPERATION

"We judged that helping to lower term interest rates would be most effective in helping the economy recover.

"I hope banks will bid at the new operation if they need liquidity. We are trying to make sure banks' behaviour will not be constrained by scarcity of liquidity the BOJ provides. We will deepen efforts on this.

"We can say this is quantitative easing in the broad sense that we are trying to ensure banks are not faced with (liquidity) constraints."

"I have no intention of monetising government debt nor do I think that this measure will lead to debt monetisation. Investors will take risk for 10 years (when buying 10-year bonds). They don't just buy them just because they get funding for three months."

"If you look at the yield curve of up to one year, the Japanese curve is the lowest on the whole. But if you look at three-month and six-month LIBOR rates, the yen rates are higher. That's partly because many foreign banks that don't use the yen much are among reference banks.

"Actual funding rates for Japanese banks, such as repo rates, are indeed lower than LIBOR rates. I don't think term rates are elevated overall but today's measure will have an effect on them."

BOJ'S RELATIONS WITH GOVT

"It was not desirable that we had to wait for my meeting with the prime minister to make decisions. The economy is a living thing so we looked for the most appropriate timing to decide on new steps.

"It was not government pressure that led to the latest decision. The BOJ has heavy responsibility and it wanted to carry out its responsibility.

"It is natural that government officials have various opinions. The BOJ understands this and pursues its goal of achieving sustainable economic growth under stable prices."

CURRENCY MOVES

"Since late last week, there have been several moves in international finance, and the yen has risen and stock prices have dropped. Those moves were feared to negatively affect business sentiment and therefore the economy. The government and the BOJ share the same understanding about the current situation. The BOJ was led to seek ways to make its easy monetary policy more effective.

"The BOJ does not target foreign exchange itself when it makes decisions. Still, if the bank's easy stance becomes widely known in markets, it will have certain effects on the currency market in the long run."

JGB BUYING

"The BOJ does not to intend to buy government bonds to stabilise long-term rates and to monetise government debts.

"Japan has a bad fiscal balance. The U.S. is in better condition. But the BOJ shares the view shown by Federal Reserve Chairman Ben Bernanke that the Fed's government bond buying is not aimed at sustaining long-term rates and monetising government debt."

DEFLATION

"The BOJ's thinking on prices has not changed. It expects falls in consumer prices to narrow but downward pressure to continue. Modest price falls are likely to persist.

"If modest price falls are generally termed deflation, we have judged it appropriate to use the term in order to more accurately convey the BOJ's thinking to the public."

CONSISTENCY WITH CORPORATE FUND SUPPORT STEPS

"By accepting broader collateral than the current special operations for supporting corporate finance, the BOJ expects to contribute more to the stability of the financial market as a whole. So our decision on the new operation is consistent with the BOJ's previous decision to end corporate-fund support steps.

"The targeted 10 trillion yen for the new operation should be sufficient for now. If the market is still tight, that would be reflected in interest rates. We will decide whether to change the amount based on market moves." (Reporting by Hideyuki Sano and Tetsushi Kajimoto; Editing by Hugh Lawson) ((tetsushi.kajimoto@thomsonreuters.com; +81 3 6441-1829; Reuters Messaging: tetsushi.kajimoto.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))