BOJ Shirakawa pledges huge fund injection Monday

By Leika Kihara and Stanley White

TOKYO (Reuters) - Bank of Japan Governor Masaaki Shirakawa said the central bank will provide huge amounts of liquidity to the banking system on Monday, reinforcing the bank's determination to keep markets stable in the wake of the devastating earthquake that struck northeastern Japan.

The BOJ is likely to provide 2 trillion to 3 trillion yen in funds through its market operations Monday morning, two to three times the normal amount, to soothe markets and keep short-term borrowing costs from spiking.

"We will monitor market conditions and plan to provide markets with a lot of liquidity first thing tomorrow morning," Shirakawa told reporters after attending a meeting of cabinet ministers for discussion on the economy on Sunday.

Shirakawa also said the central bank will thoroughly consider the economic impact of the earthquake when the board meets for a rate review on Monday.

"It is very important to ensure a stable settlement system and to provide financial markets with ample liquidity," he said.

Shirakawa added the BOJ will do its utmost to ensure power outages will have a minimal impact on the bank settlement system.

The Financial Services Agency said it was also rigidly monitoring markets to prevent any unfair transactions after the quake, adding that Tokyo financial markets will operate as normal on Monday.

Japanese policymakers hope that modest fiscal spending and ultra-easy monetary policy can minimize the damage from Friday's massive earthquake and tsunami on an economy just emerging from a lull.

Ruling and opposition parties have called a truce to allow the government to focus on dealing with the aftermath of the 8.9 magnitude quake that triggered what could be the world's worst nuclear disaster in 25 years and led to planned power outages.

The BOJ is set to keep interest rates on hold at a range of zero to 0.1 percent at its rate review on Monday, which was cut short from the initially planned two-day meeting, but keep markets on guard against the chance of further monetary easing if damage from the quake threatens Japan's return to a moderate economic recovery.

(Editing by Chris Gallagher)