WRAPUP 2-Japan faces risk of ratings downgrade over debt

(For global coverage of soaring govt debt click [ID:nDEBT])

* Fitch threatens ratings review over bond issuance

* Investors fret over Japan's bulging public debt

* Finance minister acknowledges concerns over budget

* Voters getting more worried about fiscal discipline

* Strategist: Markets need more reassurance (Recasts, adds analyst comment)

By Stanley White

TOKYO, Nov 10 (Reuters) - Fitch Ratings warned Japan on Tuesday to keep to its borrowing target or risk a credit rating downgrade as the finance minister acknowledged the problem and tried to reassure rattled investors by saying spending had to be cut.

Japanese sovereign credit default swaps spreads have nearly doubled in the past week as investors fretted that the government faces a funding crunch over its ballooning public debt, which the International Monetary Fund says will spiral to 227 percent of gross domestic product next year, by far the worst in the G7.

The fiscal pain is causing public concern in Japan and is building into a major test of the new government, which is trying to reconcile a slump in revenues owing to the global downturn with ambitious spending plans.

The government has said it plans to borrow 44 trillion yen ($490 billion) in the 2010/11 fiscal year starting next April, which would be on top of expected record issuance this fiscal year of more than 50 trillion yen.

But Fitch Ratings said it's hard to see how the 2010/11 goal will be achieved and borrowing much more than 44 trillion yen would spark a ratings review. [ID:nT286946]

"To be frank, at this point it is quite hard to see how they are going to maintain the 44 trillion yen," David Riley, co-head of global sovereign ratings at Fitch, told Reuters Television in an interview.

"It's not the sole determinant that will drive our assessment but other things being equal, then I think that would prompt us to review Japan's current double AA-minus rating."

Reflecting investor concerns over the government's budget, yields on benchmark 10-year Japanese government bonds hit a five-month high on Tuesday of 1.485 percent JP10YTN=JBTC and the JGB yield curve is its steepest in over three years.

For a graphic on credit default swap spreads and 10-year government bonds, click: r.reuters.com/wuw68f