* BOJ keeps policy rate at 0-0.1 pct, no easing steps * BOJ: To do utmost to ensure banking system stability * BOJ revises up economic view, warns of uncertainty * Central banks have tools ready to offer funds-Shirakawa By Leika Kihara and Rie Ishiguro TOKYO, June 15 (Reuters) - Bank of Japan Governor Masaaki Shirakawa pledged on Friday to ensure the country's banking system remains stable, signalling readiness to pump liquidity into the market in case a Greek election in the weekend ignites fresh turmoil. Shirakawa said central banks were always in close contact with each other and carefully watching markets, which remain jittery on worries over the Greek election and Spain. "Central banks share a common understanding that it is important to ensure financial system stability," he said at a news conference after the BOJ decided to keep policy settings unchanged. "If there are worries over funding, central banks can offer liquidity to markets" under existing frameworks such as the Federal Reserve's dollar swap arrangement with the BOJ and other major central banks. He declined to say whether there are any plans, or possibilities, for major central banks to take coordinated action next week if the Greek election jolts global financial markets. G20 officials have told Reuters that central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the election results cause tumultuous trading. As widely expected, the BOJ held off on increasing the size of its main policy tool, a 40-trillion yen ($505 billion) asset buying programme, saving its firepower in case prospects of a Greek exit from the euro triggers a spike in the safe-haven yen. Shirakawa said the BOJ will do its utmost to protect Japan's banking system, which remains stable now, suggesting that the central bank is ready to pump huge amount of funds into the system should markets destabilise. "We're keeping an eye out on markets with extreme caution," he said, reiterating that Europe's debt crisis remains the primary risk to Japan's recovery prospects. Japanese banks have been relatively immune from the fallout of Europe's debt crisis due to their limited exposure to the region, although policymakers worry that a sell-off of global shares, if too big and sharp, would hit their balance sheets. Tokyo is quietly drawing up contingency plans to protect its economy in case Sunday's elections heighten prospects for Athens to leave the euro zone. The first line of defense for the BOJ would be fund injections to calm Tokyo's markets. The BOJ and other central banks also have a dollar-swap arrangement with the Fed with the latest extention of the deal, which allows them to tap unlimited amount of dollars, to run to February 2013. BULLISH ON ECONOMY The BOJ revised up its assessment on Japan's economy to say it is starting to pick up, convinced that robust private consumption and rebuilding from last year's earthquake will offset some of the pain from slowing global growth. But it warned that global uncertainty runs high as Europe's debt crisis keeps markets on edge, suggesting that it will offer further stimulus if risks to Japan's recovery heighten. For Japanese policymakers, the biggest fear is that a fresh wave of global risk aversion could see investors flock to the yen and force it to a fresh record high above 75.31 per dollar, hurting the export-reliant economy. If that happens, the central bank would probably increase the size of its asset-buying programme, said sources familiar with the bank's thinking. "If the yen shoots up and stock prices fall, the BOJ may hold an emergency meeting to increase government bond purchases and buy bonds with longer dates until maturity," said Yuichi Kodama, economist at Meiji Yasuda Life Insurance in Tokyo. "But any such action by the BOJ alone probably won't contain market turmoil," he said, adding that it may take concerted easing by U.S. and European central banks to calm markets. The BOJ eased policy in February and set a 1 percent inflation target to underline its resolve to reinflate an economy beset by deflation for much of two decades. It relaxed policy again in April but has paused since then on the view that Japan's economy is headed for a moderate recovery. Many market participants expect the central bank to ease again in July, if not earlier, when it issues revised quarterly economic forecasts that may show an end to deflation is far. Japan's economy is expected to outperform most of its G7 peers this year with growth of around 2 percent, helped by reconstruction spending following last year's earthquake.