UPDATE 1-Japan to sell $1.7 trln JGBs next fiscal yr-sources

* Japan plans to sell Y144.9 trln in JGBs in 2011/12-sources

* Gov’t struggles to tame public debt, now twice size of GDP

* May boost 30, 40-yr bonds by Y100 bln per auction-sources

* Dealers say market can digest increase in 30,40-yr debt-MOF

By Takaya Yamaguchi and Yoshiyasu Shida

TOKYO, Dec 20 (BestGrowthStock) – Japan plans to issue a record high
144.9 trillion yen ($1.72 trillion) of government bonds to the
market in the next fiscal year from April, two sources with
knowledge of the matter told Reuters on Monday.

That would mark an increase of 0.6 trillion yen, or 0.4
percent, from the 2010/11 fiscal year, though it would be smaller
than the median analyst forecast of 147 trillion yen in a Reuters
poll conducted earlier this month. [ID:nTKG006995]

Japan has struggled for years to reduce its deficit. Public
debt has grown to roughly twice the size of its $5 trillion
economy, though the country’s huge domestic savings has spared it
the sort of financing troubles faced by some European countries.

The Ministry of Finance is considering a plan to boost the
sales of 30-year and 40-year bonds by 100 billion yen per auction
while keeping the issue amount of other maturities unchanged,
according to the sources, who spoke on condition of anonymity.

The government is expected to unveil its debt issuance plan
for next year after it seals that year’s budget on Dec. 24.

A MOF official, speaking after meetings with JGB investors
and primary dealers, told reporters on Monday that many dealers
believe the market can digest increases of about 100 billion yen
per auction for both 30-year and 40-year bonds.

The official added that some dealers said that if issuance
had to be boosted in other maturities it was better to issue more
20-year and 10-year bonds than two- and five-year bonds, given
the recent rises in yields of these shorter-dated maturities.

Japan’s debt sales to the market have doubled in just over 10
years, from 67.9 trillion yen in 1999/2000, due to a combination
of stimulus spending, a slump in tax revenues amid a weak economy
and rising social welfare costs.

The big jump in Japan’s debt burden have led to numerous
predictions of a looming fiscal crisis, although those forecasts
have so far proven misplaced as domestic investors, backed by
roughly $15 trillion in household savings, have been happy to
snap up government debt as the economy stagnates.

At the moment, more than 90 percent of Japanese government
debt is held by domestic investors.

Still, the JGB market is not immune to increasing investor
scrutiny over the sustainability of rising public debt around the
world.

The yield on 10-year JGBs hit a seven-month high of 1.295
percent (JP10YTN=JBTC: ) earlier this month, tracking sharp gains
in U.S. bond yields, which have been driven in part by worries
over a swelling U.S. deficit after President Barack Obama’s deal
to extend tax cuts.

Analysts think Japan may face more strains in debt financing
in the future, possibly within 10 years, as its ageing and
declining population could shrink its private savings.
(Writing by Hideyuki Sano; Editing by Joseph Radford and Nathan
Layne)

UPDATE 1-Japan to sell $1.7 trln JGBs next fiscal yr-sources