UPDATE 1-Japan wary of yield rise before budget deadline

(For more stories on the Japanese economy, click [ID:nECONJP])

* Govt compiling draft budget due on Dec 24

* Fiscal discipline needed to stick to borrowing cap

* Additional gains in yields could worry govt, BOJ
(Adds direct quote, details)

TOKYO, Dec 17 (BestGrowthStock) – Japan’s finance minister said on
Friday he was wary of recent gains in bond yields as the
government faces a test of its fiscal discipline in crafting the
state budget for next fiscal year.

Yields on Japanese government debt edged lower on Friday,
though that on the benchmark 10-year notes remained near a
seven-month high reached earlier this week as signs of
improvement in the U.S. economy pushed bond prices lower.

Any further gains in Japanese yields could become a headache
for the government as it tries to repair public finances. Higher
yields could also become a problem for the Bank of Japan, which
meets next week, as it thwarts the central bank’s policy of
pushing rates lower by buying debt and other assets.

“It’s important to pay close attention to moves in the bond
market, just as I would for currencies or stocks,” Finance
Minister Yoshihiko Noda told reporters.

“This could potentially impact how we estimate debt servicing
costs, so I want to watch developments closely.”

Japan’s key 10-year JGB yield (JP10YTN=JBTC: ) fell 3.5 basis
points to 1.235 percent, following a decline in Treasuries. The
benchmark Japanese yield hit a seven-month peak of 1.295 percent
on Wednesday.

The government is compiling a draft budget for the fiscal
year starting next April and will need to exercise fiscal
restraint to meet its pledge to cap new bond issuance at 44
trillion yen ($524 billion) and a spending target of 77 trillion
yen, excluding debt servicing costs. A draft budget is due on
Dec. 24.

Traders expect the government to meet its debt issuance
target, according to a Reuters poll, but any signs of increased
borrowing could push yields higher.

The BOJ, which meets on Dec. 20-21, unveiled an asset buying
scheme in October to purchase government debt, corporate bonds
and real estate investment trusts to push down interest rates and
help the economy escape from deflation.
($1=83.97 Yen)
(Editing by Michael Watson)

UPDATE 1-Japan wary of yield rise before budget deadline