BOJ's Kuroda says will shift policy if economy changes

By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said the central bank will shift monetary policy if economic conditions change sharply in the future, leaving the door open for further monetary stimulus if needed to pull the country out of deflation.

Kuroda said the central bank will make the utmost effort to stem volatility in the bond market and avoid any sharp rises in yields through measures such as flexible market operations.

"The important merit of monetary policy is mobility and flexibility," Kuroda said in a semi-annual parliamentary hearing on monetary policy on Wednesday.

"We're not saying that because we took action on April 4, we will never act again for two years. If economic and financial conditions change sharply and we judge that our April 4 action wasn't enough or was excessive, we'll make necessary policy adjustments," he said.

Kuroda said financial markets have been somewhat unstable since late May, with long-term interest rates on the rise mainly due to anxiety over when the U.S. Federal Reserve will exit from its ultra-loose monetary policy.

But he said he expects markets to stabilize over time, reflecting improvements in the economy.

The BOJ unleashed the world's most intense burst of stimulus on April 4, pledging to double the size of its balance sheet via aggressive asset purchases to achieve its 2 percent inflation target in roughly two years.

The central bank last week held off on extending the maximum duration of funds it offers via market operations to two years from the current one year, a step some market players called for to calm bond markets.

Kuroda said the BOJ will not rule out extending duration as a future policy option, as it may have some effect in curbing bond market volatility.

(Editing by Chris Gallagher and Eric Meijer)