* Finmin: BOJ should monitor corporate funding situation
* Bank min: not time for BOJ to mull ending funding support
* Analyst: pressure may make it hard for BOJ to end funding (Recasts, adds analyst comments)
By Tetsushi Kajimoto
TOKYO, Oct 6 (Reuters) - Japan's government put pressure on the central bank on Tuesday to avoid ending its emergency funding for companies too soon, with the finance minister saying the economy had yet to stabilise.
The warning from two ministers about the risk of premature withdrawal of emergency aid followed a report in the Nikkei business daily that the Bank of Japan was preparing to let some measures expire in December as markets return to normal.
"The apparent pressure from the government will likely make it difficult for the BOJ to end its corporate-finance support measures in December," said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.
Finance Minister Hirohisa Fujii described the economy as unstable and said the central bank was at a stage where it should appropriately monitor the situation for corporate funding.
"I firmly believe that (BOJ Governor Masaaki) Shirakawa will not do things that run counter to economic conditions," Fujii told reporters at a post-cabinet news conference.
While not referring specifically to the central bank, National Strategy Minister Naoto Kan said optimism over the state of the Japanese economy was not warranted.
Major central banks around the world are debating how to wind back the hefty interest rate cuts and cash injections put in place in the midst of the global financial crisis.
In the United States and elsewhere, central banks have started to wind down their purchases of fixed-income securities as private investors flock back to credit markets and strains in short-term and longer-term lending markets ease.
Australia on Tuesday became the first economy among the Group of 20 nations to raise rates after slashing them during the crisis.
CREDIT MARKETS MEND
Japanese credit markets have been on the mend thanks in part to the BOJ's actions, with the average issue rate for one-month commercial paper falling to 0.21 percent in August from a peak of 1.34 percent last December.
The central bank's commercial paper purchases have pushed interest rates on such debt so low that some issuers have been able to borrow funds more cheaply than the government.
The BOJ is expected to decide by Oct. 30 whether to keep the measures in place, but depending on the markets, the talks could continue into November, the Nikkei said without citing sources.
"Japanese authorities are rightfully concerned not to end stimulative policy too early," said Adrian Foster, head of financial markets research for Asia-Pacific at Rabobank in Hong Kong.
BOJ chief Shirakawa signalled at a Group of Seven meeting of finance ministers and central bankers at the weekend that the end of the unconventional policies may be near, telling reporters corporate finance was in less need of policy support with credit market conditions improving significantly.
A BOJ survey showed last week that funding became easier for large companies in the past quarter, but small firms continued to struggle.
The bond market took the newspaper report and the ministers' comments in its stride.
"Since banks' need for the BOJ's outright buying of commercial paper and corporate bonds has been diminishing, the bond market will likely take it calmly if the central bank ends the measures," said Naomi Hasegawa, senior fixed income strategist at Mitsubishi UFJ Securities.
POLITICAL PRESSURE
Financial Services Minister Shizuka Kamei told reporters that it was too early for the central bank to discuss pulling the plug on its funding support, but it was unclear whether the Bank of Japan would let itself be swayed by ministers rhetoric.
"The BOJ is independent. But the government does often give its opinion on BOJ policy and this will continue," said Rabobank's Foster.
Kamei, head of the junior coalition partner People's New Party and a harsh critic of bare-knuckles capitalism, has already upset financial markets in his first few weeks in office with a proposal for a loan moratorium to support small firms.
Katsuhiko Nakamura, director of research at think-tank Asian Forum Japan, said it was not yet clear to markets or the public what to make of comments such as Kamei's.
"(Prime Minister Yukio) Hatoyama is trying to create a system of decision-making led by the prime minister and the cabinet, but it is not yet unified, and this is evidence of that," he said. (Editing by Hugh Lawson and Tomasz Janowski)