BOJ's bond holdings fall for first time since deploying stimulus in 2013

TOKYO, Oct 6 (Reuters) - The Bank of Japan's government bond holdings fell in September from the previous month for the first time since it deployed its massive stimulus programme in 2013, a sign the bank is steadily slowing purchases under a policy targeting interest rates.

The balance of the BOJ's government bond holdings stood at 404.239 trillion yen ($3.58 trillion) at the end of September, down 705 billion yen from the previous month, central bank data showed on Friday.

The BOJ adopted the huge asset-buying programme to break Japan out of deflation and accelerate inflation to its ambitious 2 percent target.

Years of heavy asset buying have failed to drive up inflation, however, and the BOJ revamped its policy framework to one targeting interest rates instead of the pace of money printing, partly on concern its huge bond buying was drying up market liquidity and nearing a limit.

The central bank now pledges to guide short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

While it maintains a loose pledge to increase its bond holdings at 80 trillion yen per year, the BOJ has steadily slowed bond purchases to a 50-trillion-yen per year pace. ($1 = 112.9300 yen) (Reporting by Leika Kihara and Sumio Ito; Editing by Kim Coghill)