UPDATE 1-Japan govt waffles on JGB issuance target

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

* PM: hasn't given up Y44 trln target, but tough to meet -Jiji

* Investors say govt unlikely to stick with issuance target

* Long-term yields rise on doubts about fiscal discipline

By Stanley White

TOKYO, Dec 11 (Reuters) - Japanese Prime Minister Yukio Hatoyama said he hasn't given up on capping new bond issuance next fiscal year at 44 trillion yen but acknowledged it would be difficult to meet, Jiji news agency reported, casting doubt on the course of fiscal policy.

Prices on longer-dated bonds fell, pushing up yields, as investors took a flurry of conflicting comments on next fiscal year's budget as a sign that the government is losing grip of fiscal discipline.

The budget debate coincides with concerns about Hatoyama's leadership that are eroding his support rates ahead of an upper house election next year, in which his Democratic Party aims to win an outright majority so that it no longer needs to rely on two tiny but vocal coalition partners to pass bills smoothly.

A newspaper poll published on Monday showed that voter support for his government had slipped to 59 percent, still high for a Japanese leader, but off initial highs of over 70 percent. [ID:nSP483519]

"Most investors don't expect the government to stick with this bond issuance target," said Hideaki Kinoshita, chief manager of proprietary trading at Bank of Tokyo-Mitsubishi UFJ.

"But the pace of bond issuance will eventually break the market's back. Rates are sure to rise. It's just a question of when."

Hatoyama said on Friday the government needs to maintain fiscal discipline and limit Japanese government bond issuance to 44 trillion yen, according to Jiji news. The Nikkei newspaper earlier reported that Hatoyama told members of his cabinet he would give up on trying to limit bond issuance.

Chief Cabinet Secretary Hirofumi Hirano said on Thursday the government would not necessarily be bound by this target, echoing similar comments from Hatoyama earlier this week. [ID:nTOE5B908Z] [ID:nTKG006594]

The benchmark 10-year JGB yield rose 2 basis points to 1.260 percent JP10YTN=JBTC. Longer-end bonds were generally weaker, with the 20-year yield rising 2 basis points to 2.035 percent JP20YTN=JBTC.

Japan's government, in power for around three months, must balance campaign promises to put more money in the hands of consumers and pressure from coalition partners to spend more against the spectre of falling tax revenues and a bulging public debt already headed for 200 percent of GDP next year. (Editing by Chris Gallagher)