* Negative rate policy hurting banks - BOJ Suzuki
* Monetary policy less effective if banks' health in bad shape
* BOJ sending subtle signals it may fine-tune yield curve control (Adds quotes, detail)
TOKYO, Nov 25 (Reuters) - Bank of Japan board member Hitoshi Suzuki said there is room to debate a fine-tuning of the central bank's yield curve control (YCC) policy when inflation approaches its 2 percent target, the Mainichi newspaper reported on Saturday.
"It's inappropriate for interest rates to show no changes until the 2 percent inflation target is hit, and then jump abruptly once the target is achieved," Suzuki said in the interview with the daily newspaper.
"There is room to debate a fine-tuning of YCC once inflation heads near 2 percent, so that markets can gradually accept the changes," he said.
The remarks by the former commercial bank executive are the strongest signal to date that the BOJ could move up its interest rate targets before 2 percent inflation is achieved, to ease the hit to bank margins from years of ultra-low borrowing costs.
Suzuki said the BOJ's negative rate policy is having a "significant" impact on financial institutions' profits.
"If the health of financial institutions is in trouble, it's possible monetary policy won't function well," Suzuki was quoted as saying, adding that he will watch carefully for any sign such risks are materializing.
People familiar with the central bank's thinking have told Reuters the BOJ is dropping subtle, yet intentional, hints that it could edge away from crisis-mode stimulus earlier than expected, through a future hike in its yield target.
Under its YCC policy, the BOJ guides short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent. (Reporting by Leika Kihara; Editing by Chris Reese and James Dalgleish)