By Leika Kihara and Takahiko Wada
TOKYO/Oita, Japan (Reuters) -Bank of Japan Deputy Governor Ryozo Himino said an exit from ultra-loose monetary policy, if done properly, will reap benefits for the economy, signalling that an end to decades of super-low interest rates may be nearing.
While signs from various data remain patchy, Japan is making "solid progress" in shifting firms away from practices that kept price and wage growth subdued, Himino said in a speech on Wednesday to business leaders in the southern city of Oita.
"The BOJ should carefully monitor the evolution of wages and prices, judge the timing of the exit, and design its process," he said, adding that Japan's banking system was resilient enough to weather any stress that could emerge during the transition.
"If this is done properly, we could achieve a positive outcome from the exit because a wide range of households and firms would benefit" from rising wages and prices, he said.
The remarks by Himino, a former top bank regulator and currently one of the BOJ's two deputy governors, underscore a growing conviction within the bank that conditions for phasing out years of massive stimulus are gradually falling into place.
Himino said the BOJ will maintain its ultra-loose policy settings, consisting of a negative short-term interest rate and bond yield control, until sustained achievement of its 2% inflation target came into sight.
Aside from wage and price moves, the BOJ will scrutinise overseas developments, as well as the strength of domestic consumption and capital expenditure, in deciding when to exit, he said.
But he refrained from making predictions on when exactly the BOJ could end negative rates or bond yield control, stressing he had no pre-set schedule or sequence in mind for the exit.
"We'll look at various factors, but there's never a moment when you see a green light flash for all of them. There's also never a moment where the lights all turn red," Himino told reporters after the meeting with Oita business leaders.
"In reality, you have to make a call at some point amid a mixed batch of signals," he said on the timing for phasing out stimulus.
The BOJ is pursuing a negative interest rate policy, which assesses a 0.1% charge on a pool of excess reserves, and is guiding long-term rates around zero to encourage growth.
Japanese inflation has exceeded the BOJ's 2% target for more than a year, leading many market players to expect the bank will pull short-term interest rates out of negative territory sometime next year. But many policymakers say they want to see more evidence that prices are being driven by stronger domestic demand, not external forces such as high global oil prices.