TOKYO, Oct 8 (Reuters) - Japanese government bonds (JGB)

traded lower on Wednesday, following a tumultuous session in

which yields surged to historic levels before reversing

direction, as speculation swirled about the course of the

nation's fiscal policy.

The 10-year JGB yield rose 1.5 basis points

(bps) to 1.690%.

On Tuesday, the yield touched 1.695% for the first time

since July 2008 before finishing lower on the day. Yields move

inversely to bond prices.

The 30-year JGB yield, which reached an

all-time high of 3.345% in the previous session, was flat at

3.17%.

The JGB market has been on edge since the election of fiscal

dove Sanae Takaichi to lead the ruling Liberal Democratic Party,

positioning her to replace hawkish Shigeru Ishiba as prime

minister.

Takaichi is a devotee of the "Abenomics" policies of the

late Shinzo Abe, who oversaw huge expansions of fiscal and

monetary stimulus. Attention is now focused on which parties

Takaichi will court into a coalition with the LDP and who she

will appoint to key roles, such as the minister of finance.

"Market participants have understandably been waiting for

insights into the intended direction of fiscal policy," Mizuho

Securities senior market economist Yusuke Matsuo wrote in a

note.

"We believe that Takaichi will ultimately need to take a

pragmatic approach to her 'responsible proactive fiscal policy'

strategy owing to the people she will be surrounded by as well

as the various pressures she will be facing from markets,"

Matsuo added.

A smooth auction of 30-year bonds on Tuesday helped soothe

concerns that the market would avoid super-long debt with a

fiscal expansionist at the government helm.

The 20-year JGB yield added 1 bp to 2.695%.

The five-year yield climbed 2.5 bps to 1.23%. The

two-year yield rose 2 bps to 0.925%.