Japan to trim total govt bond issuance next fiscal year: Sources

Japanplans totrimits overall governmentbondissuanceto the market by 0.5 per cent nextfiscalyearfrom currentyear's levels, government officials said on Wednesday, as Prime Minister Shinzo Abe balances supporting growth and reining in huge public debt.

The drop would mark the seventh straightyearof declines intotaldebtissuance, despite risingfiscalspending as worries grow that cooling global growth and the US-China trade war could hit corporate tax income in export-ledJapan.

The government is set to sell 128.8 trillion yen ($1.19 trillion) ofJapanese governmentbonds (JGBs) in thenextfiscalyearbeginning in April 2020, down from thisyear's 129.4 trillion yen, the two officials said on condition of anonymity because the plan has not yet been announced.

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Of thetotal, the government is considering increasingissuanceof JGBs with maturity of 40years by 600 billion yen from the currentfiscalyearto 3 trillion yen, the officials said, in a nod to solid demand from investors hunting for yield amidyears of ultra-low interest rates.

Issuanceplans for other maturities will remain unchanged, they added.

Newbondissuancefornextfiscalyear, which excludesbonds issued to roll over those reaching maturity, will fall for the 10th straightyearto 32.56 trillion yen, versus thisfiscalyear's 32.7 trillion yen.

The government is expected to approve its draft budget fornextfiscalyearon Friday.

The general-account budget will hit a record 102.66 trillion yen in spending due to increases in welfare to support the fast-ageing population as well as military outlay, according to the draft. Tax revenue is estimated at 63.51 trillion yen.

After peaking at a record 156.6 trillion yen issued infiscal2013, governmentbondissuancehas been declining, supporting Abe's arguments thatJapanis keeping itsfiscalhouse in order while boosting spending to reflate the economy.

The government has managed totrimthe amount of JGBs sold to the market in recentyears, partly by tapping funds raised in the past from "front-loading" JGBissuance, which took advantage of low borrowing costs.

Still,Japan's public debt is the highest among advanced economies andtotalspending undernextfiscalyear's budget is likely to hit a new record. And yet,bondyields have been kept low due to the Bank ofJapan's aggressive buying under a policy that caps 10-yeargovernmentbondyields around 0 per cent.

The BOJ's ultra-loose monetary policy has crushed yields across the curve, forcing investors to hoard super-long governmentbonds in search of higher returns.

Wary of the implications of a flattening yield curve on financial institutions' profits, BOJ Governor Haruhiko Kuroda has repeatedly warned against excessive falls in super-long yields.

The increase in supply of 40-yearbonds could alleviate the pain of investors, though many analysts doubt the effect on steepening the yield curve would be sustainable.