UPDATE 3-BOJ's Shirakawa reassures markets low rates to stay

(For more stories on the Japanese economy click [ID:nECONJP])

* Repeats to stick to very easy monetary policy

* Risks to Japan economy becoming more evenly balanced

* Downward price pressure to persist for some time

* Defends BOJ growth forecasts when criticised as too strong (Adds Shirakawa comments on parliament)

By Leika Kihara

TOKYO, Nov 4 (Reuters) - The Bank of Japan will keep interest rates near zero even as downside risks to the economy subside, the central bank governor said, reassuring investors its withdrawal from credit markets does not signal an exit from its ultra-easy monetary policy.

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. [ID:nT32693]

BOJ Governor Masaaki Shirakawa told a forum on Wednesday that stronger growth than expected in emerging nations meant risks to Japan's economy had become more evenly balanced than early in the year, when the BOJ was focusing on risks to growth from the global recession and financial market turmoil.

But with deflation likely to persist and economic activity still low, the BOJ will keep monetary conditions loose to support a fragile economic recovery, he said.

"We've decided to end our commercial paper and corporate bond purchases, which were implemented as temporary steps to cope with a sharp credit crunch triggered by the collapse of Lehman Brothers," Shirakawa said.

"This is a separate issue from how, through monetary policy, to deal with balance sheet adjustments and ensuing weakness in economic recovery."

Policymakers globally are facing the dilemma of how and when to gradually withdraw the extraordinary stimulus injected into their economies to fend off the global financial crisis.

"Shirakawa probably wanted to send out as strong a message as possible that the BOJ was drawing a line between reviewing its support for corporate finance and maintaining very low rates," said Yasunari Ueno, chief market economist at Mizuho Securities.

In a policy review last week, the BOJ extended a low-interest loans scheme by three months from December to March, but said the funding measure would then be stopped.

It also decided to end a less used programme of purchasing commercial paper and corporate bonds from banks in December.