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Bank of Japan to pump cash into banks

By Chris Isidore, senior writer

NEW YORK (CNNMoney) -- Japanese officials said Sunday they will backstop the country's financial system when markets reopen after Friday's devastating earthquake and tsunami.

The Bank of Japan, in a statement, said it would monitor financial markets and the operation of banks and "stand ready to respond and act as necessary."

The head of the Japanese Central Bank, Masaaki Shirakawa, told reporters that the Bank of Japan stood ready to "provide markets with a lot of liquidity first thing tomorrow morning," according to numerous news reports.

The aim is to make sure the banks have enough cash on hand to meet demands of panicky investors and cover withdrawal demands of bank customers.

Officials will rigidly monitor the markets to prevent any transactions by people trying take advantage of the disaster, Japanese Minister for Financial Services Shozaburo Jimi said Sunday. Specifically, the ministry will ban so-called naked short selling, which can cause a run on stocks.

The earthquake hit off the coast of Japan, several hundred miles from Tokyo, just before the close of trading in Japanese markets on Friday afternoon. The benchmark Nikkei 225 stock index dropped just over 100 points, or 1%, in the final minutes of trading and ended the day 1.7% lower.

Trading in stock futures, which tend to predict future stock movements, suggest that stocks will fall when markets open for trading on Monday.

Friday's earthquake -- the most powerful to hit Japan in at least 100 years -- unleashed walls of water that caused widespread damage. By official counts, more than 1,500 people have died and about that many are missing, though fears remain that the toll could go much higher. To top of page

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