UPDATE 1-Japan to mull trimming new bond issuance next fiscal year - Nikkei

* Revenue from sales tax hike to help cut bond issuance - Nikkei

* Japan to mull increasing issuance of 40-year JGBs - Nikkei

* Govt to finalise draft budget on Thursday (Adds details, background on Japan’s public debt, monetary policy in paragraphs 2, 4-5, 7-8)

TOKYO, Dec 18 (Reuters) - Japan’s government is considering slightly trimming new bond issuance in the next fiscal year ending in March 2020 from the current year’s levels, the Nikkei newspaper reported on Wednesday.

That would mark the 10th straight year of declines in annual new bond issuance, as Prime Minister Shinzo Abe’s administration seeks to balance the need to underpin the economy and rein in the country’s huge public debt.

The total amount of new Japanese government bond issuance (JGBs) for next fiscal year is likely to be around 32.5 trillion yen ($299.15 billion), down from the current fiscal year’s 32.7 trillion yen, the paper said without citing sources.

The decline is due in part to revenue from a sales tax hike that rolled out in October, as well as reserves and a pool of funds appropriated from special accounts, the Nikkei said.

The government is expected to finalise its draft budget for next fiscal year on Thursday.

Of the total, the government is considering increasing issuance of JGBs with maturity of 40 years, the Nikkei said, in a nod to solid demand from investors hunting for yield amid years of ultra-low interest rates.

Japan’s public debt is the highest among advanced economies and total spending under next fiscal year’s budget is likely to hit a new record. And yet bond yields have been kept low due to the Bank of Japan’s aggressive buying under a policy that caps 10-year JGB yields around 0%.

The BOJ’s ultra-loose monetary policy has crushed yields across the curve, forcing investors to hoard super-long government bonds in search of higher returns. ($1 = 108.6400 yen) (Reporting by Leika Kihara in Tokyo Editing by Sandra Maler and Matthew Lewis)