The Treasury Department said Sunday it is monitoring financial markets closely in the wake of the devastating earthquake that struck Japan last week but had assurances that transactions systems were working.

We have been assured by our Japanese counterparts that transactions and settlement systems are operating normally, although there may be temporary cash shortages in affected areas, a Treasury spokesperson said.

It was unclear what the eventual impact of the earthquake and tsunami will be on investors' appetite for risk. Japanese authorities were still coming to grips with the extent of the damage the country suffered.

The Bank of Japan has said it is standing by to offer liquidity to markets if necessary, and indications were that financial markets were making every effort to get back to business at the start of the trading week.

(Reporting by Glenn Somerville, editing by Todd Eastham)