Q+A-Japan's fiscal woes deepen, making JGB investors wary

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

By Rie Ishiguro

Nov 6 (Reuters) - Japan's fiscal woes are fast expanding as the new government eyes huge spending to meet campaign pledges, sending bond yields higher on worries about a glut of new debt.

Plunging tax revenues mean they now cover less than half of government spending, adding to the pressure on yields as investors fret about the growing gap in Japan, which already has the highest public debt among developed countries.

Rising yields could also lead to government pressure on the Bank of Japan to boost its buying of government bonds, pushing it back towards a policy of quantitative easing.

Here are some questions and answers on Japan's fiscal woes.

HOW BIG IS JAPAN'S TAX HOLE?

Corporate tax revenues have plummeted since last year, when the global financial crisis pushed Japan's economy into its deepest recession since World War Two.

So, the government paid out more in tax refunds to companies in the six months to September than it gathered in corporate tax revenue, the first such deficit in nearly half a century.

Total tax revenue in the year to March 2010 is sinking to a 24-year low below 40 trillion yen, down 13 percent from the initial finance ministry estimate and less than half of spending.

For a graphic showing the fiscal pressure on Japan, click: r.reuters.com/paw97f

The government hasn't issued a tax estimate for the next fiscal year but it can't count on sharp rises as job and wage cuts hold back household incomes. Welfare costs are rising and the government, facing an upper house election next year, has ruled out any rise in sales tax for four years.

WILL THE GOVERNMENT REIN IN SPENDING?

The government won power in August pledging to increase payouts to households with children and end expressway tolls but it has to cut other spending to make room for these policies.

Ministries want to spend a record 95 trillion yen in 2010/11 but the government aims to trim that to 92 trillion yen -- 18 percent of GDP.

For the current fiscal year, the government is also trying to find funds for its new policies by reallocating money from its predecessor's stimulus spending of 15.4 trillion yen, 3 percent of GDP. So far it has found just 3 trillion yen of the 7 trillion yen it needs to do this.