(Repeats story from late Friday with no changes)
* BOJ QQE programme buying 80 tln yen govt bonds a year
* Senior BOJ officials discuss longer-term options -sources
* BOJ could revamp QQE in longer term -sources
* QQE not intended to last another 5-10 yrs -source
* Concern that BOJ may run out of sellers of govt bonds
By Leika Kihara
TOKYO, Sept 18 Sources say the Bank of Japan has
been quietly brainstorming the idea of overhauling its massive
monetary stimulus programme over time, casting doubt on
officials' confident assertions that it can keep buying up
government bonds for several more years.
Sources familiar with the BOJ's thinking say stepping up its
80 trillion yen ($665 billion) per year asset buying remains its
go-to option if deflationary pressures persist, given a limited
arsenal of obvious policy alternatives.
But they say the central bank isn't ruling out breaking with
the money-printing programme over the longer term, as it has had
little success in accelerating inflation toward its 2 percent
target since it began in April 2013.
Senior BOJ officials have been involved in preliminary talks
discussing the longer-term options, the sources said.
"If the medicine isn't working, you wonder whether it makes
sense to keep prescribing more," one of them said on condition
Another source quoted a senior BOJ official as saying that
if the so-called quantitative and qualitative easing (QQE)
programme fails to accelerate inflation for too long, a revamp
of the framework may become an option.
"QQE is not a programme intended to last another five, 10
years," said a former BOJ policymaker with knowledge of current
monetary policy deliberations.
The BOJ has pumped 180 trillion yen into the economy since
adopting QQE and each month gobbles up government bonds
equivalent to about 1 percent of Japan's GDP.
While the stimulus has boosted exporters' profits by
weakening the yen, its broader impact has been weak as firms
remain wary of increasing wages and investment.
Inflation has ground to a halt on falling oil costs and soft
consumption, rekindling market expectations the BOJ might step
up easing as early as next month.
But with borrowing costs near zero, some BOJ officials doubt
whether expanding QQE would help the economy much and some worry
they might eventually run out of sellers if they accelerate the
The BOJ already holds about a quarter of Japanese government
bonds (JGB) in the market, and that would rise to nearly 40
percent by the end of 2016 at the current pace of buying.
BOJ technocrats say they can keep buying as long as they
offer high prices, but BOJ board member Takehiro Sato, a former
bond analyst, has argued that there are limits because financial
institutions need a certain level of JGBs for collateral.
The International Monetary Fund agrees.
"Given the pace of the BOJ's purchases under the QQE program
that is under way ... you could run out of willing sellers of
JGBs by the end of 2017," said Kalpana Kochhar, the IMF's
mission chief for Japan.
That would not just make the bond market dysfunctional, it
would also prevent the bank from hitting its monetary base
REVERT TO RATE TARGET?
For now, there is no consensus within the BOJ on what any
overhaul to the programme might look like. Many policymakers
still cling to hope that inflation will rise enough to allow
them to consider phasing out QQE around 2017.
But with a sales tax hike looming that year, many analysts
doubt the BOJ can withdraw stimulus so soon.
If the BOJ bumps into trouble buying JGBs, some analysts say
it could abandon the 0.1 percent interest the central bank pays
on reserves the financial institutions park in BOJ accounts, or
even charge a fee for them. That might particularly hurt
regional banks, which are already struggling with thin margins
on bond investments.
"The BOJ can combine this step with an increase of risky
asset purchases and call it a new version of QQE," said Ryutaro
Kono, chief Japan economist at BNP Paribas, who was once
considered a candidate to fill a BOJ board vacancy.
"That would effectively mean shifting the BOJ's target to
interest rates from the volume of money."
BOJ Governor Haruhiko Kuroda has ruled out the idea as it
would make it hard to achieve the BOJ's base money target by
discouraging banks from depositing funds with it.
But he also said that in Europe, negative interest rates had
had essentially the same effect as QQE in pushing down yields
across the curve.
The IMF's Kochhar said cutting the 0.1 percent interest
could be one way to "get the money out the door".
"The BOJ has told us while nothing is ruled out, they would
watch carefully the European Central Bank's experience."
($1 = 119.7500 yen)
(Reporting by Leika Kihara; Editing by Will Waterman)