BOJ's Kuroda upbeat on economy despite Brexit fears

By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said the central bank is ready to expand monetary stimulus further if needed to achieve its 2 percent inflation target, but made no mention of the Brexit vote that has spread turmoil in financial markets.

Kuroda maintained the central bank's optimistic view on the economy, signalling his confidence over Japan's recovery prospects.

"Japan's economy is expected to expand moderately as a trend," Kuroda said in a speech delivered at a quarterly meeting of the central bank's regional branch managers on Thursday.

"The BOJ will scrutinise risks to the economy and prices, and take additional easing steps if deemed necessary," he added.

Speculation is swirling in markets that the BOJ will ease policy at its rate review this month as weak consumption, a strong yen and external headwinds weigh on the economy and push inflation further away from its goal.

Britain's shock vote to leave the European Union has heightened expectations of the BOJ taking action, so Kuroda's silence on the potential fallout of Brexit will keep markets guessing on his next move.

The BOJ chief reiterated that while consumer prices may fall slightly for the time being, inflation will accelerate towards his 2 percent target reflecting improvements in the economy.

"Japan's financial system is stable and financial conditions remain very accommodative," Kuroda said, signalling that the BOJ's negative interest rate policy and the global market turbulence have done little damage to Japanese banks so far.

The BOJ has kept monetary policy steady since January, when it decided to add negative rates to its massive asset-buying programme in a fresh attempt to accelerate inflation.

(Reporting by Leika Kihara; Editing by Chris Gallagher & Shri Navaratnam)