* BOJ's ETF purchase hits more than 3-year low in Sept
* BOJ targets buying 6 trillion yen Japan stocks per year
* Small buying in Sept has limited immediate policy implications
* May support market in Oct-Dec as BOJ has bigger ammunition left
TOKYO, Sept 30 (Reuters) - The Bank of Japan's exchange-traded funds purchase this month hit the lowest level in more than three years, but few market players see it as a sign the central bank is tapering its stock buying.
The BOJ bought 163 billion yen ($1.5 billion) worth of Japanese stock ETFs in September, central bank data showed on Monday.
It was the smallest monthly buying after the central bank doubled the buying target to 6 trillion yen per year in July 2016. So far this year, the BOJ has bought 3.6 trillion yen in ETFs, about 20% less than same period last year.
Nevertheless, market players see few immediate policy implications.
The BOJ's buying fell in September as the BOJ has been sticking to its unwritten, self-imposed rule that it buys ETFs on a day when the Topix index falls 0.5% or more in the morning.
In September, the BOJ bought only a little, just because Japanese shares have rallied strongly, with the Topix comfortably outperforming global peers.
Topix climbed 5.0%, compared with 1.2% gain in the U.S. S&P500 and 3.2% rise in Europe's STOXX600.
Yet, analysts say the outperformance of Japanese shares was largely due to short-covering by foreign speculators while long-only investors have mostly stayed away, suggesting the market remains vulnerable.
One key worry for overseas investors is a hit to the Japanese economy from an imminent consumption tax hike, scheduled on Tuesday.
"It will take time before long-only foreign investors start buying Japanese shares as 'global cyclical stocks'," said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities.
"We think they will wait and see how the domestic economy fares after the sales tax hike and whether mid-year earnings reporting season shows a profit turnaround."
For the past year or so, Japan Inc's earnings outlook has been constantly deteriorating.
There is likely to be a bumpy road ahead, said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities, citing many uncertain factors such as U.S.-China trade talks and U.S. congressional moves to impeach President Donald Trump.
"I think the BOJ is glad to have a plenty of room left to buy ETFs for the Oct-Dec period. The central bank could still end up using the remaining allowance by the year end." ($1 = 107.80 yen)
(Additional reporting by Hideyuki Sano; Editing by Alison Williams)