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By Leika Kihara

TOKYO (Reuters) -Bank of Japan (BOJ) Governor Haruhiko Kuroda said on Thursday any future debate on an exit from ultra-loose monetary policy will centre on the pace of increase in short-term interest rates and adjustments in the bank’s massive balance sheet.

Kuroda brushed aside the chance of a near-term interest rate hike, stressing that the BOJ must continue to underpin a fragile economic recovery with loose monetary policy.

But he said the BOJ can debate an exit strategy from its massive stimulus and head toward policy normalisation when achievement of its 2% inflation target, acco*panied by wage increases, co*es into sight.

“It’s premature to lay out details of an exit strategy. But one major factor of debate will be the pace of increase in the BOJ’s short-term policy rate, now set at -0.1%,” Kuroda told parliament.

“Another factor would be how to adjust its balance sheet,” he said, adding that most major central banks were moving ahead with rate hikes, before shifting toward a full-blow decrease in their balance sheets.

Kuroda said wages are likely to increase ahead as co*panies respond to intensifying labour shortages and recent rises in living costs, though the outlook remained highly uncertain.

“It’s extremely important for the BOJ to underpin the economy with ultra-loose monetary policy and ensure the necessary environment is falling into place for co*panies to hike wages,” Kuroda said.

Under its yield curve control (YCC) policy, the BOJ guides short-term rates at -0.1% and caps the 10-year bond yield around zero as part of efforts to sustainably achieve its 2% inflation target.

(Reporting by Leika Kihara; Editing by Himani Sarkar & Shri Navaratnam)