*Shirakawa says getting rid of "excesses" could take time
*Says BOJ to keep monitoring corporate funding conditions
*Sees Japan economy growing in Q2 after record Q1 contraction
By Hideyuki Sano
KANAZAWA, Japan, May 25 (Reuters) - Any recovery in the world economy will be mild as it will take considerable time to get rid of excesses built up during the growth years, the governor of the Bank of Japan said on Monday.
Speaking just days after the central bank upgraded its assessment of Japan's economy for the first time in nearly three years, Masaaki Shirakawa said both Japan and the world economy still faced significant risks and uncertainty despite some bright signs.
He added that the BOJ needed to keep a close eye on conditions in corporate finance, suggesting the central bank was in no hurry to scrap the unconventional measures it has put in place to help companies raise funds.
"Given that high economic growth continued for many years prior to the current crisis, the possibility that adjustments of excesses will take considerable time cannot be ruled out," Shirakawa said in a speech to business leaders.
While acknowledging that adjustments in some "excesses" such as in U.S. housing markets had made some headway, Shirakawa said working off the excesses and fixing the financial system at the same time could be difficult in light of Japan's experience.
"Even in the middle of adjusting excesses, there will be cyclical upturns and downturns. In fact, the Japanese economy recovered a few times in the 1990s ... But in order for the economy to start a full-fledged recovery, completion of adjustments in excesses and restructuring of the financial system are prerequisites," he said.
The bank last week said the Japanese economy was levelling out, saying a rebound in global demand could mean last quarter's record 4.0 percent contraction was the worst of the recession.
In the past few months some signs have emerged that the global economy is stabilising, with steep declines in Japanese exports levelling out and industrial output rising 1.6 percent, the first gain in six months.
A likely reverse in output and exports may also mean the Japanese economy will grow in April-June after four straight quarters of contraction, Shirakawa said.
"Inventory adjustments have progressed so much that a big negative factor will be gone. In that sense, it is likely to be positive," he told a news conference.
But Shirakawa said the central bank has not dropped its guard against possible downside risks.
Hirokata Kusaba, a senior economist at Mizuho Research Institute, said: "Shirakawa remains cautious on the outlook. His view has not changed since last month that the economy may be bottoming cyclically but not getting back on a sustainable growth path. There's a lot of uncertainty over the path of the economy.
"His cautious remarks suggest that the BOJ is likely to keep its current easing policy for a long time while showing no sign of seeking an exit strategy," Kusaba said.
Shirakawa said the central bank would keep an eye on funding conditions for companies, saying banks could tighten their lending attitude if Japanese share prices fall again, which would cause considerable losses at banks, big holders of shares.
Shirakawa did not elaborate on the policy outlook, only repeating that the BOJ would do its utmost to ensure a recovery.
The bank kept its key interest rate on hold at 0.1 percent last Friday, having cut it twice since the collapse of U.S. investment bank Lehman Brothers in September that triggered a financial firestorm and pushed the global economy into a meltdown.
With rates stuck near zero, the BOJ has adopted a slew of unconventional measures such as buying commercial paper and corporate bonds and increasing its buying of Japanese government bonds. (Additional reporting by Tetsushi Kajimoto in Tokyo; Editing by Hugh Lawson)