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.

Economics Minister Kaoru Yosano also said the government will fight decisively against speculative moves and will not tolerate short-selling to take advantage of the quake.

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.

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.

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.

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.

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.

Yosano, who is usually cautious about pressuring the BOJ for monetary easing, told a news conference he was confident that the central bank will take both traditional and non-traditional monetary policy steps when necessary.

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.

Finance Minister Yoshihiko Noda told the meeting of cabinet ministers that he will closely watch currency and interest rate moves when markets open on Monday, according to Yosano who briefed reporters on the meeting.

(Editing by Chris Gallagher)

Japan