/www.bloomberg.com/ By Mayumi Otsuma
Tokyo, Oct. 21 (Bloomberg) -- Japan's central bank governor Masaru Hayami says the bank is ready to provide more funds to ensure financial market stability and will monitor the impact of declining stocks on the economy and Japan's financial system.
``The Bank of Japan will continue to do its best to stop continuous price declines and help the economy to achieve sustainable growth,'' Hayami said in his opening speech at the quarterly meeting of the bank's regional branch managers.
The central bank governor said it is essential for the government to push for efforts to restructure the economy to make the bank's easy monetary policy more effective.
The BOJ is ready to provide more funds ``regardless of its reserve target, if there is unstable movement in financial markets,'' Hayami said.
The bank currently buys 1 trillion yen in government bonds from lenders per month and makes as much as 15 trillion yen in reserves available to banks. The central bank may expand a bond purchase to about 1.2 trillion yen, investors said.
``The central bank may move, as early as at its next board meeting on Oct. 30, to expand its monthly bond purchases and raise its reserve target,'' said Yasunari Ueno, chief market economist at Mizuho Securities Japan Ltd.
Prime Minister Junichiro Koizumi said Friday the government and the Bank of Japan ``will cooperate'' to stem a four-year bout of price declines, which cut companies' profits, erode the value of assets and create new bad loans held by Japanese lenders. Koizumi plans to release a set of measures to support economic growth this week.
Hayami today said the bank will support efforts by the government and commercial lenders to step up disposal of the estimated 42.4 trillion yen in bad loans that burden banks.
The central bank governor also said although the Japanese economy has ``stabilized'' on the whole, the bank has not seen clear signs of recovery in the economy as global growth is slowing and Japan's prices continue to fall.
The central bank has kept interest rates near zero since March last year and has made trillions of yen available in the money market.
Hayami has said the bank will maintain that policy until consumer prices, excluding fresh food, stop falling from year-ago levels. The price index has fallen for 35 months in row, and the bank will probably be forced to keep interest rates near zero for at least a few years, analysts said.