BOJ's Kuroda says Japan market conditions improving

TOKYO (REUTERS) - Bank of Japan Governor Haruhiko Kuroda said on Monday Japan's financial system is stable and capital markets have been improving due to a decline in risk aversion and expectations for domestic policy.

Mr Kuroda reiterated the BOJ's commitment to achieving its 2 percent inflation target within two years, if not sooner, and that some economic indicators suggest that inflation expectations are starting to pick up.

The BOJ stunned global financial markets earlier this month, promising to inject about $1.4 trillion into the economy in less than two years by buying government debt and risk assets to end 15 years of deflation.

Mr Kuroda's assessment of financial markets may do little to comfort investors who are worried that the size of the BOJ's debt purchases could distort financial markets.

"Our financial system is stable overall, and monetary conditions are accommodative," Mr Kuroda said, according to a summary of his speech.

"A decline in risk aversion among global investors and expectations for domestic policy are helping markets improve." Kuroda also said Japan's economy has bottomed out and is showing signs of improvement as domestic demand and overseas economies improve.

The BOJ took more aggressive easing steps to lower longer-term rates, but the size of the BOJ's purchases has caused yields to rise and bond futures to fall due to worries that other institutional investors will be crowded out of the market.

The BOJ will buy 7.5 trillion yen (S$94 billion) of long-term government bonds per month, roughly 70 percent of newly issued government debt.

Mr Kuroda said he expected monetary policy to change expectations by influencing longer-term rates and asset prices, which will help end deflation.