Finally, as a fourth option, the central bank could choose to react mainly by means of communication. Communicating its views when asset prices are considered to be out of bound with fundamentals could lead market participants to increase their own doubts about the sustainability of price developments.
In proceeding with the reduction, I think that it is possible to diminish its effects on financial markets by providing a thorough explanation, or forward guidance, to the markets that the reduction will actually enhance the stability and sustainability of the Bank’s JGB purchases.