The Bank of Japan deputy governor said the current instability in financial markets will need careful monitoring following the bank's rate hike at the end of July.

The Nikkei 225 stock index fluctuated widely in early August, including recording its biggest ever single-day drop. The yen also appreciated sharply against the dollar.

BOJ Deputy Governor Himino Ryozo said he does not expect the plunge in the Nikkei to have a major impact on the banking system as banks now hold fewer stocks than before. He added that BOJ officials in the past were more worried about the repercussions on banks.

But in a speech on Wednesday, Himino said financial and capital markets remain unstable and the BOJ needs to monitor developments with the "utmost vigilance".

The deputy governor also commented on the central bank's basic stance on monetary policy. He said the bank will "adjust the degree of monetary accommodation" if officials are confident in their outlook for economic activity and prices.