UPDATE 2-BOJ policymaker urges debate on ways to address cost of easy policy, ETF buying

* BOJ must mull ways to make policy sustainable - Masai

* BOJ’s ETF buying remains a tool to enhance policy effect

* Inflation expectations weak, no room for policy complacency

* Remark suggests growing awareness of cost of prolonged easing (Recasts with quotes from briefing)

TOKYO, Nov 16 (Reuters) - The Bank of Japan must deepen debate on how to address the rising cost of prolonged monetary easing, such as by making its purchases of exchange-traded funds (ETF) more flexible, board member Takako Masai said on Monday.

With the coronavirus pandemic likely to keep Japan’s economic recovery moderate, the central bank must seek ways to make its policy framework sustainable, she said.

The need to enhance the effect of its monetary tools has also heightened because cutting already low interest rates will likely give a limited boost to growth, Masai said.

“The BOJ’s ETF buying, along with forward guidance, will remain among tools to enhance the effect of monetary easing,” Masai told a news conference.

“We need to consider whether there’s room to enhance our ETF-buying programme,” she said without elaborating.

The remarks by Masai, who has consistently voted with the majority of the board, underscore the dilemma the BOJ faces as it seeks to reflate the economy with a dwindling toolkit, while looking after the side-effects of prolonged easing.

Japan’s economy has yet to fully recover from the pandemic’s pain and inflation expectations are weak, Masai said, stressing the BOJ must brace for a prolonged battle to hit its price goal.

“As for monetary policy, there’s no room to be complacent yet,” she said.

Aside from guiding short-term interest rates at -0.1% and capping long-term rates around zero, the BOJ buys huge amounts of government bonds and riskier assets like ETFs to try to fire up inflation to its elusive 2% target.

Market players say the BOJ’s ETF buying has put a floor under Tokyo stocks. Critics of the programme, however, warn the bank’s decade-long buying is distorting proper market pricing.

BOJ Governor Haruhiko Kuroda has repeatedly said he saw no immediate need to review the bank’s ETF buying. (Reporting by Leika Kihara; Editing by Chang-Ran Kim, Lincoln Feast and Catherine Evans)