BOJ Shirakawa: Japan financial system calming down

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TOKYO, July 6 (Reuters) - Bank of Japan Governor Masaaki Shirakawa said on Monday that Japan's financial system on the whole was becoming calmer, but banks needed close monitoring as they fell into the red in the year that ended in March.

"Looking at Japan's financial conditions, the environment surrounding the issuance of CP and corporate bonds is improving further," Shirakawa said in a speech to a meeting of the central bank's regional branch managers.

"Many firms still face a tight funding and lending attitude from banks, although there are signs that the trend has stopped deteriorating."

The BOJ upgraded its economic assessment for the second straight month in June, as improvements in exports and output fuel hopes the worst of the recession is over.

It has kept interest rates at 0.1 percent since cutting them twice last year in the wake of the global financial crisis. With financial strains easing, markets are focusing on whether the BOJ will extend corporate finance support beyond September.

The central bank's policy board next meets on July 14-15. (Reporting by Tetsushi Kajimoto)