One BOJ policymaker called for higher yield target at December meeting

TOKYO (Reuters) - The Bank of Japan should be flexible about raising its bond yield target and allow long-term interest rates to increase if such moves reflected improvements in the economy, one of its board members was quoted as saying at this month's rate review.

"I am opposed to setting the 10-year bond yield target around zero percent, and believe the yield curve should be allowed to steepen a bit more," the board member said, according to a summary of opinions at the Dec. 19-20 meeting released on Thursday.

The views are likely those of former market economist Takehiro Sato, who dissented to the BOJ's decision to maintain the 10-year bond yield target around zero percent.

While his views are a minority, it highlights a rift within the nine-member board on the feasibility of the new policy framework that requires the BOJ to ramp up bond buying if market pressures push up yields above its target.

At the December meeting, several board members argued that the BOJ should keep its yield targets at current levels for the time being to avoid withdrawing stimulus prematurely, according to the summary of views.

"The BOJ should maintain its policy rates at current levels for a considerable period ... given its past experience of prematurely ending zero interest rates and quantitative easing," one board member was quoted as saying in the summary.

Under a new policy framework adopted in September, the BOJ now guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

It abandoned its previous target committing to the pace of money printing, partly on concern its aggressive bond purchases could reach a limit in coming years by drying up market liquidity.

The BOJ bought more bonds than expected earlier this month to temper a globally inspired rise in yields, and has sought to allay market concerns that it will taper its massive purchases any time soon.

The BOJ's resolve to cap long-term interest rates around zero has been put to test as Japanese government bond yields creep up reflecting a global yield rise, driven by expectations of steady interest rate hikes by the U.S. Federal Reserve.

At the December meeting, the BOJ decided to maintain its yield targets by a majority vote.

(Reporting by Leika Kihara; Editing by Kim Coghill)