TOKYO, March 11 (Reuters) - The Bank of Japan may tweak a three-tier deposit system at next week’s policy review to exempt a larger portion of reserves from negative interest rates, said sources familiar with its thinking. The move would aim to mitigate the pain negative rates inflict on financial institutions’ profits, and convince markets that the demerits of the policy won’t keep it from pushing interest rates deeper into minus territory, they said. “Adjusting the tiered system is one effective way to deal with the side-effects of negative rates,” one of the sources said, a view echoed by two more sources. The BOJ plans to conduct a review of its tools at the March 18-19 meeting to make its stimulus programme more “sustainable and effective,” as the coronavirus pandemic prolongs the battle to achieve its elusive 2% inflation target. At the review, the BOJ will also lay out additional measures it would take to ease banking-sector strains when it actually cuts interest rates, the sources said. Under yield curve control (YCC), the BOJ applies a 0.1% negative rate on a portion of reserves parked at the bank, and guides 10-year bond yields around 0% to reflate the economy. (Reporting by Leika Kihara; additional reporting by Takahiko Wada and Kentaro Sugiyama; Editing by Michael Perry)