December 20, 2007 / 12:21 AM / in 10 years

JGB issuance to market to be cut in FY08/09

TOKYO, Dec 20 (Reuters) - Issuance of Japanese government bonds to the market will be cut in fiscal 2008/09 for a third straight year, the Ministry of Finance said, as total JGB issuance will likely fall to its lowest level in eight years.

The ministry plans to issue 105.1 trillion yen ($927.8 billion) of JGBs directly to the market, according to its draft budget for the year starting next April 1 submitted to the cabinet on Thursday.

The planned 105.1 trillion yen issuance to the market, down from 109.6 trillion yen for the current fiscal year, is the smallest since 104.8 trillion yen issuance planned initially in fiscal 2002/03, the MOF said.

Total JGB issuance -- which includes bond purchases by the Bank of Japan and government agencies -- is expected to fall to 126.29 trillion yen from a revised 143.6 trillion yen in fiscal 2007/08, the second largest drop, the official said.

Total issuance will likely be below 130 trillion yen for the first time since 2000/01, helped by declines in “zaito bonds” or semi-government bonds refinancing the MOF’s fiscal investment loan programme fund, and issuance of refinancing bonds.

Japan remains heavily reliant on the public sector to finance its huge borrowings, with outstanding public debt expected to stand at around 773 trillion yen at the end of this fiscal year, nearly 150 percent of the nation’s gross domestic product, the highest among major industrial nations.

The MOF will roll over 92.5 trillion yen of bonds.

It plans to reduce offers of its unpopular 15-year floating rate JGBs, as well as cut five-year bond issues, while boosting 40-year bonds.

The ministry plans to issue the 15-year floating-rate JGBs in four offers of 600 billion yen each during next fiscal year. It issued 1.0 trillion yen of the bonds at each of two auctions in the April-September first half of this year, but cut the offers to 700 billion yen each for two auctions in the second half.

The MOF plans to offer 400 billion yen in 40-year JGBs next fiscal year, after a debut 100 billion yen this year.

It plans to cut the monthly offer amount of five-year JGBs to 1.9 trillion yen next fiscal year from 2.0 trillion yen this year.

The MOF plans to use 9.8 trillion yen from special-account reserves to redeem government bonds to help trim state debt. Of the total, about 3 trillion yen will be used to buy back bonds from the market, including 1.2 trillion yen of 15-year floating rate JGBs.

The MOF will also reduce six-month treasury bills to 3.3 trillion yen next fiscal year from 6 trillion yen this year, as part of its plan to combine six-month treasury and financing bills.

The MOF will have last-minute negotiations with other ministries over the next few days before compiling a final draft.

That draft, expected to have only small changes from the proposals unveiled on Thursday, is expected to be approved by the cabinet on Dec. 24 and will be submitted to parliament next year. (Reporting by Chikako Mogi, Editing by Michael Watson)

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