AYLESBURY, England (Reuters) - Japanese long-term interest rates should not shoot higher as a result of money flowing out of government bonds, Bank of Japan Governor Haruhiko Kuroda said on Saturday.
Kuroda added, however, that it would be natural for long-term rates to rise over time if Japan meets its goal of pushing inflation up towards two percent.
He said a shift in funds from Japanese government bonds to stocks and into lending was already taking place but that the BOJ was increasing its balance of JGB holdings at an annual pace of 50 trillion yen.
"The BOJ dealt with short-term volatility in bond prices by adjusting its market operations," Kuroda told reporters after a two-day meeting of G7 finance officials.
"I do not expect a sudden spike in long-term bond yields. In the long-run, if the economy recovers and inflation heads towards two percent, we might see nominal interest rates rise but that's natural."
Finance Minister Taro Aso said the G7 had levelled no criticism at Japan's monetary policy which has weakened the yen sharply.
(Reporting by Leika Kihara. Writing by Mike Peacock)