Factbox: BOJ's possible next step as market attacks yield policy

By Leika Kihara TOKYO (Reuters) - Markets are testing the Bank of Japan (BOJ), seeking to break its resolve to cap bond yields as soon as its policy decision on

Wednesday, as rising inflation challenges the central bank's ultra-easy monetary policy. Here are options the BOJ could take to change its yield curve control (YCC) policy,

which applies a minus 0.1% rate to some funds parked with the central bank and targets the 10-year government bond yield in a range around zero. STAND PAT The BOJ's

decision last month to widen the band around its 10-year yield target has failed to remove market distortions caused by its huge bond buying, instead prompting the market to test

the 0.5% upside of the range. Many BOJ officials want to take more time to gauge the effect of December's tweak, seeking clarity on whether wages and inflation will rise in

a mutually enforcing cycle of growth. With Governor Haruhiko Kuroda repeating the need to keep policy ultra-loose, the BOJ could opt to stand pat until his successor takes

the helm in April. MORE TWEAKS Bond sellers broke the BOJ's 0.5% cap on Friday, less than a month after the policy tweak, forcing emergency buying from the central

bank to bring the yield back down. Its credibility tested, the BOJ may respond with additional steps. It could make technical tweaks to smooth the yield curve, such as

tinkering with its bond-buying or other market operations. Or it could widen the band around its 10-year yield target. Many policymakers are cautious about widening the band

beyond 1 percentage point as that could make it hard for the BOJ to argue that it is guiding the 10-year yield "around 0%."