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Japan's cabinet approves 21.3 trillion yen stimulus plan

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Stimulus to be funded by bonds if tax revenue

insufficient, PM

Takaichi says

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Yen 6% weaker versus dollar since Takaichi's election

(Updates prices; adds details on package approval in 1st, 3rd

7th paragraphs, and BOJ in 9th.)

By Rocky Swift

TOKYO, Nov 21 (Reuters) - Benchmark Japanese government

bond yields (JGBs) retreated from a 17-year high on Friday after

Prime Minister Sanae Takaichi unveiled her massive economic

stimulus plan.

The 10-year JGB yield fell 3 basis points (bps)

to 1.785%, down from as high as 1.835% in the previous session,

the highest since June 2008. It's set for an 8 bps jump this

week that would be the sharpest increase since mid-August.

Super-long-term JGB yields surged to record levels on Thursday

as details about Takaichi's stimulus plan spurred concerns about

the nation's financial health. Japan's cabinet on Friday

approved the 21.3 trillion yen ($135.38 billion) spending

package that is significantly larger than the previous year's.

But the plan may not be as big a hit to Japan's finances as

feared, given the nation's quickening economic growth, while a

large share of the announced spending will come from recycled

funds, said Cameron Systermans, head of multi-asset in Asia for

investment consulting firm Mercer.

"I think a lot of the moves have potentially already

happened at the long end (of the JGB yield curve)," Systermans

said.

"Now with yields backing up to attractive levels, I think

it's getting where lot of asset owners, be they pensions or

insurers, are looking at switching from global back to Japanese

yields," he added.

Yields fell further after Takaichi said in a speech

following the package's approval that it would be funded with

new bond issuance if tax revenue is not sufficient, and overall

JGB issuance is expected to be smaller than last year's.

In the seven weeks since fiscally dovish Takaichi won a party

election that set her on the path to become Japan's first female

premier, the yen has lost about 6% against the dollar and the

10-year U.S.-Japan interest rate gap has narrowed about 11 bps.

Takaichi's ascendancy to the prime minister's office pushed

out expectations of policy tightening by the Bank of Japan, but

with the yen's rapid depreciation of late, chances of near-term

interest rate increases have come back into view. The BOJ will

discuss

at upcoming policy meetings the feasibility and timing of a

rate hike, Governor Kazuo Ueda said on Friday.

The 20-year JGB yield slid 5.5 bps to 2.795%,

down from a quarter-century peak.

The 30-year yield fell 5.5 bps to 3.32%, and

the 40-year yield sank 6.5 bps to 3.68%, both

down from unprecedented levels.