* Japan banking body to set up independent monitoring body
* To hire outside auditors
* Measures in response to global scrutiny on interbank rate setting
* No wrongdoing has been found in Tokyo interbank rate so far
TOKYO, July 5 (Reuters) - Japan's banking industry group said on Friday it will tighten monitoring of how its interbank lending rates are set, responding to growing public distrust in benchmark rates around the world in the wake of rate-rigging scandals.
The Japanese Bankers Association (JBA) said it will set up an independent monitoring body to oversee the operation of the Tokyo interbank offered rate (Tibor), hire outside auditors to improve its transparency and scrap rates that are rarely used.
The reforms mirror similar proposals already announced in London and Singapore, though they are not expected to be finalised until the International Organisation of Securities Commissions (IOSCO) announces its blueprint for how financial benchmarks should be regulated, which is due in the coming weeks.
The JBA set up a committee in April to review the operation of Tibor in the wake of global investigations into manipulation of benchmark rates such as Libor and Euribor.
Scandals have raised questions about how these benchmark rates are set, prompting authorities and banking industry bodies worldwide to overhaul rate-setting processes.
Bank branches in Tokyo were found to have been at the heart of some Libor manipulation cases.
Japanese subsidiaries of UBS AG and Royal Bank of Scotland have both pleaded guilty to charges of wire fraud filed by authorities in the United States in relation to the Libor cases.
On Thursday Tom Hayes, a former Tokyo-based trader of derivatives linked to yen-Libor, appeared in court in London charged with conspiracy to defraud
In December 2011 Japan's regulator forced UBS and Citigroup to temporarily suspend some of their trading operations after it found some of their traders had tried to inappropriately influence Tibor rate submitters at other banks.
The JBA has not found any evidence of wrongdoing, though, at the panels of banks that set its rates.
Unlike other markets, Japan's regulator has not yet proposed major reforms to how it will oversee benchmark setting. Singapore and London are both proposing that manipulation of benchmark rates should become a criminal offence.
Currently, 15 banks including major Japanese banks and BNP Paribas are reference banks for Japanese yen Tibor, and 14 banks including JPMorgan Chase and Deutsche Bank submit rates for euro yen Tibor, according to the association's website.
In the rate-rigging scandal involving Libor, U.S. and UK regulators so far have fined three banks, including Switzerland's UBS, a total $2.6 billion for their role.
Allegations of rate manipulation have spread to Asian interbank markets.
Last month, the Monetary Authority of Singapore (MAS) said 133 traders from 20 banks had tried to inappropriately influence benchmark rates in the Southeast Asian city-state.
The Hong Kong Monetary Authority (HKMA) also said it was investigating HSBC, UBS and a number of other banks about possible misconduct relating to its submissions for the Hong Kong Interbank Offered Rate (Hibor).