CORRECTED - CORRECTED-UPDATE 2-Japan PM vows to curb bond issuance

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

* PM: Repeats to keep 2010/11 bond issuance below 44 trln yen

* PM: Says doesn't think Japan economy picking up yet

* Finmin says watching bond markets very carefully (Adds Fujii comments, details)

By Leika Kihara

TOKYO, Nov 2 (Reuters) - Japanese Prime Minister Yukio Hatoyama said on Monday the government needs to keep new bond issuance in the year to March 2011 below the 44 trillion yen ($490 billion) earmarked for this fiscal year.

Bond yields have been rising recently on investor concern about the huge amount of debt that may be issued after the new government led by the Democratic Party compiled a record set of budget requests for the next fiscal year.

"The state of the economy is severe. On the other hand, we need to strive to curb bond issuance as much as possible," Hatoyama told a lower house budget committee meeting.

Cabinet ministers last month submitted a record 95 trillion yen in budget requests for 2010/11 as the Democrats piled on requests for payouts to households with children, for making high schools effectively free and for ending expressway tolls.

Hatoyama said the government would try to reduce the amount of budget requests as much as possible.

Finance Minister Hirohisa Fujii played down concern that bond oversupply could trigger sharp yield gains, saying markets were already factoring in the planned 44 trillion yen issuance next fiscal year.

But he also told the budget committee: "We're watching bond markets very carefully."

Market worries over the size and details of debt issuance for the rest of this fiscal year and next have pushed up the 10-year Japanese government bond yield by 11 basis points in October, its biggest one-month rise since May 2008.

The benchmark yield fell 3 basis points to 1.375 percent on Monday, pulling away from a 2-½ month high hit last week, due partly to a slide in equities. JP10YTN=JBTC

Fujii has already said the government could issue more bonds for the fiscal year to next March as tax revenues are likely to fall 6 trillion yen or more below an initial estimate.

He has also said he wants to limit bond issuance in 2010/11 to below the 44 trillion yen earmarked for this fiscal year.

Hatoyama said he hasn't reached a conclusion yet on whether to compile a second extra budget for this fiscal year to support the fragile economy.

"There are views that the economy is picking up, but I don't think that's necessarily the case," Hatoyama said.

"Tax revenues, on the other hand, are seen falling significantly. This needs to be taken into account in considering whether to compile a second extra budget."