TOKYO, Jan 11 (Reuters) - Markets are rife with speculation the Bank of Japan (BOJ) could take further steps to phase out its yield control policy in coming months, as rising inflationary pressures hamper its ability to cap long-term interest rates.

With prospects of wage hikes rising, many BOJ policymakers feel that conditions may fall into place this year to tweak yield curve control (YCC) - a policy combining a short-term interest rate target of -0.1% with a pledge to guide the 10-year bond yield around 0%, say sources familiar with its thinking.

Below are several options the markets and analysts see for the BOJ:

STAND PAT FOR NOW

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, leaving traders guessing whether more steps could come as early as the Jan. 17-18 meeting.

Many BOJ officials, however, may want to wait to gauge the effect of December's action. They may also seek more clarity on whether the economy will expand enough to sustainably prop up wages and inflation.

Governor Haruhiko Kuroda has repeatedly stressed the need to keep policy ultra-loose, reinforcing the prospect the BOJ will stand pat until his successor takes the helm in April.

MAKE TECHNICAL TWEAKS TO YCC

The BOJ has ramped up bond buying since the December action to mend distortions in the yield curve. While the 10-year yield has moved below the new 0.5% cap, yields for shorter-dated notes have crept up as investors price in the chance of a near-term interest rate hike.

The central bank could take additional technical steps to smooth the shape of the yield curve, if the board feels the December widening of the band has not been enough. But any changes will likely be minor tweaks to its bond-buying or other market operations.

ABANDON OR RAISE 10-YEAR YIELD TARGET

If spring wage negotiations lead to higher pay and Japan's economy strengthens enough to underpin corporate profits, the BOJ could abandon its 10-year yield target or raise it from the current 0%.

The BOJ will describe the move as a modest withdrawal of stimulus, rather than the start of a full-fledged interest rate cycle. In doing so, it may pledge to buy enough bonds to prevent any abrupt, disruptive spikes in borrowing costs.

That may not happen until the latter half of this year, as the BOJ awaits evidence that inflation and wage pressures will be sustained as a trend.

To justify the move, the central bank could conduct a comprehensive review of its policy framework - an idea flagged by BOJ board member Naoki Tamura in an interview in December.

END NEGATIVE INTEREST RATES

Under its negative rate policy, the BOJ currently imposes a 0.1% charge for a small pool of excess reserves financial institutions park with the central bank.

The BOJ may abandon the charge and start paying positive interest to the excess reserves to mop up liquidity from the financial system.

Such a move would come only when the BOJ deems Japan's economy achieves a positive cycle, in which rising prices generate higher pay, giving households more purchasing power.

The move would ease the pain on commercial banks, which have seen margins crushed by years of ultra-low rates. But it would cool the economy by raising rates for bank lending and mortgage loans.

The BOJ will thus be in no rush to pull the trigger. Any such moves would likely be accompanied by or come well after a BOJ hike or end to its 10-year yield target.

WIDEN BAND AROUND ITS YIELD TARGET

The BOJ could widen to 1.5% the current 1.0% band set around its 10-year yield target, if it sees the need to take more steps to breathe life back to a market made dormant by its huge bond buying.

But many policymakers are cautious about widening the band further, as doing so would effectively allow the 10-year bond yield to rise to as much as 0.75% - well above the 0% target.

Having already widened the band several times, the BOJ could opt for an overhaul of YCC - rather than piecemeal steps like a widening of the band - if the side-effects become too large. (Reporting by Leika Kihara; Editing by Sam Holmes)