TOKYO, May 17 (Reuters) - Bank of Japan Governor Kazuo Ueda said the central bank had no immediate plan to sell its huge holdings of exchange-traded funds (ETFs), which is drawing increased attention as a potential source of revenue to fund government initiatives.
"We must spend some time in deciding what to do with our ETF holdings, including whether to unload them in the future," Ueda told parliament on Friday.
The remarks come amid growing debate about how the BOJ should best deal with the legacy of the its efforts to end deflation with heavy money printing, which left it with a huge balance sheet.
The BOJ ended eight years of negative interest rates and other remnants of its radical stimulus programme in March, including a framework to buy risky assets such as ETFs that had been in place since 2010.
The central bank has yet to lay out a plan to unload its huge holdings of ETFs and government bonds partly out of concern of destabilising financial markets.
But some BOJ board members see scope to start discussions with one saying at last month's policy meeting that favourable market developments could allow them to discuss specifics on how to treat the bank's ETF holdings.
"The BOJ should aim to bring the outstanding amount of its ETF holdings to zero, even if it takes a long time," another member said, according to a summary of opinions at the April meeting.
The BOJ holds about 37 trillion yen ($237 billion) worth of ETFs. Private estimates put the market value of the holdings at roughly 67 trillion yen as of January, which means latent profits would be around 30 trillion yen.
If the BOJ were to unload its ETF holdings in the future, it will do so based on their market value at the time rather than book value, Ueda said on Friday.
With the BOJ moving toward normalising monetary policy, some politicians and market players have flagged ideas on how to unload its huge ETF holdings or tap the proceeds for spending.
Japan's biggest opposition party, the Constitutional Democratic Party of Japan, has proposed using the dividends from the BOJ's ETF holdings to fund childcare spending.
Ken Shibusawa, a private-sector member of a government panel, has called on the government to set up a special fund that would buy the BOJ's ETFs in exchange for perpetual bonds.
The BOJ currently pays profits it earns, including from the ETF dividends, to state coffers. The government has not said how the BOJ's ETF holdings could be used in the future.
"The only thing the BOJ has power to decide is whether to sell its ETF holdings or not. It has no say on how the proceeds could be used," said former BOJ executive Kazuo Momma.
"Unless the government comes up with a clear idea, the hurdle for deciding on the fate of ETF is quite high."
($1 = 155.8500 yen)
Reporting by Leika Kihara; Editing by Sam Holmes and Christopher Cushing
