Kuroda expresses confidence in BOJ's ability to exit QE policy

By Stanley White

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Tuesday one option the central bank could take when it decides to unwind its current quantitative easing policy would be to raise interest rates on excess reserves.

Kuroda, speaking in the upper house of parliament, also said he felt the BOJ would be able to manage its exit smoothly, including reducing the size of its balance sheet.

The governor said it was too early to say specifically what the BOJ will do with the government debt on its balance sheet when it has to exit its ultra-easy policy.

"We have a lot of measures at our disposal, so I am sure we can take the most appropriate policy steps while maintaining marking stability, which would include reducing the size of our balance sheet," Kuroda said.

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 focused on controlling short- and long-term yields instead.

Still, there are major concerns among some economists about the difficulties the BOJ may face in reducing its extremely large holdings of government debt.

The challenges associated with unwinding the massive monetary policy stimulus global central banks have unleashed in recent years has drawn renewed attention.

Minutes from the last U.S. Federal Reserve meeting showed policymakers think they can begin trimming their own balance sheet 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.

(Reporting by Stanley White; Editing by Sam Holmes)