<p>An exit strategy, or broader monetary policy normalization, from large-scale unconventional monetary policy requires central banks to adjust the level of their policy interest rates and the size of their balance sheets. Adjustments in policy interest rates are guided by estimated neutral interest rates, even in the presence of measurement uncertainty. In contrast, adjustments in balance sheet size, or quantitative tightening (QT) processes, are implemented largely through trial and error, without standardized guideposts. Academic research providing systematic frameworks for QT remains scarce. In this paper, I develop a guidepost for the QT process, based on rigorous empirical investigations that fully incorporate the practical details of monetary policy implementation by the Bank of Japan (BOJ). I estimate the nonlinear reserve demand curve in Japan to identify the long-term level of reserve balances. I then carry out a simulation analysis of the transition path of the BOJ’s holdings of Japanese Government Bonds (JGBs). Finally, I introduce an “extended banknote rule” that offers a conceptual framework for delineating the boundary between monetary policy operations and fiscal financing in an expanded central bank balance sheet environment.</p>