TOKYO (Reuters) - Bank of Japan’s governor on Tuesday said some of the options the central bank has when it decides to unwind its quantitative easing programme include raising interest rates on the excess reserves lenders hold with the bank.
Haruhiko Kuroda, speaking in the upper house of parliament, said it was too early to say specifically what the BOJ would do with the government debt on its balance sheet when it has to exit its ultra-easy policy.
However, he said the BOJ would be able to manage its exit smoothly, including reducing the size of its holdings of bonds purchased in recent years to stimulate economic growth.
Economists say his comments mark a shift in his public communications, having up until this year avoided discussing specific options for the BOJ’s stimulus exit strategy.
“We have a lot of measures at our disposal, so I am sure we can take the most appropriate policy steps while maintaining market stability, which would include reducing the size of our balance sheet,” Kuroda said.
Other steps that could help wind down policy stimulus include soaking up liquidity through central bank market operations and letting bonds on its balance sheet expire, he added.
When the BOJ introduced its quantitative easing policy in 2013, its holdings of Japanese government bonds rose at an annual pace of 80 trillion yen. Since then, the BOJ has loosened its commitment to this target and focussed on controlling short- and long-term yields instead.
The BOJ currently applies a negative 0.1 interest rate on a small portion of commercial banks’ excess reserves. Raising rates on excess reserves, which economists say is relatively easy for the BOJ to do, would effectively end that policy.
“I sense a slight change in Kuroda’s comments, which suggests that he’s becoming more conscious of the exit,” said Norio Miyagawa, senior economist at Mizuho Securities.
“Either he’s becoming more confident in prices or he wants to avoid criticism that the BOJ looks like it has no plan.”
Still, there are major concerns among some economists about the difficulties the BOJ may face in reducing its extremely large holdings of government debt and about how it will manage money market operations to control liquidity.
The challenges associated with unwinding the massive monetary policy stimulus global central banks have unleashed in recent years have drawn renewed attention.
Minutes from the last U.S. Federal Reserve meeting showed policymakers think they can begin trimming their own asset holdings later this year.
Kuroda has repeatedly said he sees no reason to change his own bank’s policy any time soon as consumer prices are still far from the BOJ’s 2 percent inflation target.
However, economists’ expectations have shifted dramatically recently. A majority of analysts polled by Reuters predict the BOJ’s next move would be to scale back stimulus, possibly as early as the second half of this year, as inflation picks up.
Earlier on Tuesday, Kuroda expressed guarded optimism about the price trend. Speaking before lawmakers, Kuroda reiterated the BOJ’s consensus view that consumer prices will gradually accelerate towards the 2 percent inflation target.
However, wage gains have been slow compared to an extreme tightening in the labour market, he said.
Reporting by Stanley White; Editing by Sam Holmes