Exclusive: BOJ to defend QQE in Sept policy assessment - sources

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan has already prepared a preliminary outline of a "comprehensive" assessment of its policies due next month that will maintain a pledge to hit its 2 percent inflation target at the earliest date possible, sources familiar with its thinking said.

In the draft, the BOJ identifies sharp falls in oil prices, a prolonged hit to growth from a sales tax hike in 2014 and Japan's inability to shake off its deflationary mindset as hampering achievement of its inflation target, the sources said.

Officials had been drafting the outline weeks before the BOJ announced late last month that it will conduct the assessment at its next rate review on Sept. 20-21, sources said.

The draft is subject to change depending on debate by the nine-member board.

A BOJ spokesman declined to comment.

The preliminary outline appears to make no direct recommendations on the future direction of monetary policy, though the general tone would suggest that a tapering of the BOJ's massive stimulus programme is unlikely.

The BOJ eased policy in July but was not as aggressive as financial markets had expected, sending the yen higher and triggering a sell-off in the Tokyo stock market.

Many analysts and traders fear it has little ammunition left and that monetary policy may be reaching its limits in terms of reviving the long-moribund economy.

The BOJ said it will conduct a thorough assessment in September of the pros and cons of its current stimulus programme, which combines negative interest rates with a massive asset-buying scheme - dubbed "quantitative and qualitative easing" (QQE) - adopted in 2013.

(Additional reporting by Sumio Ito and Yoshifumi Takemoto; Editing by Kim Coghill)