TOKYO (Reuters) -Japan's stressed government bond market and soaring stocks are set for more volatility on Monday after the resignation of fiscal hawk Prime Minister Shigeru Ishiba.

Yields on super-long Japanese government bonds (JGBs) have already been hovering near record highs due to global concerns about fiscal deficits and domestic political pressure on Ishiba. Japan's Nikkei share gauge has recently slipped from last month's record high.

Attention now focuses on potential successors for Ishiba and a potential return to the "Abenomics" policies of the late Shinzo Abe, Japan's long-time leader who presided over massive fiscal stimulus and unprecedented monetary easing from the central bank.

"A knee-jerk reaction of the markets would be a bear-steepening of JGBs, weaker yen and mildly higher stock prices as they see higher risks of an Abenomics-like reflationary policy," said Naka Matsuzawa, chief macro strategist at Nomura Securities in Tokyo.

Ishiba's relatively conservative fiscal stance has been seen as a positive for the JGB market, where yields are still relatively low globally, but concerns about Japan's massive debt pile and widening fiscal deficits remain concerns.

The country's outstanding debt is nearly 250% the size of its gross domestic product, the highest in the developed world. Japan's budget requests for the next fiscal year amounted to a record for the third straight year, the finance ministry said last week.

"Yields on super-long bonds will likely rise from Ishiba's resignation," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management. "There has been an upward pressure on super-long bond yields due to uncertainties about fiscal conditions, and the pressure will increase."

The 30-year JGB yield last week jumped to an unprecedented 3.285%, while the 20-year yield hit 2.69%, the highest since 1999. The surge in yields spells ever higher borrowing costs for the government, corporations and the public.

The JGB market was dealt a blow in mid-July when Ishiba's coalition suffered a considerable defeat in upper house elections. Outsider parties campaigning on tax cuts and increased spending gained seats, and speculation has swirled for weeks about pressure within Ishiba's Liberal Democratic Party (LDP) for him to resign.

That all came to a head on Sunday, with Ishiba saying that he must take responsibility for election losses and instructing the LDP to hold an emergency leadership vote.

Among top contenders in the LDP leadership race is Sanae Takaichi, who has advocated for the central bank to maintain ultra-low interest rates to support the economic recovery.

"If Sanae Takaichi is going to be the successor, that's positive for the stock market as she wants to boost government spending," said Takamasa Ikeda, senior portfolio manager at GCI Asset Management in Tokyo.

Japan's benchmark Nikkei share index hit a record high of 43,876.42 on August 19, riding a wave of optimism for corporate governance reforms and investment in artificial intelligence. It closed at 43,018.75 on Friday and analysts in a Reuters poll see the index easing off that level to 42,000 by year-end.

The Bank of Japan is on a gradual path to normalise interest rates and reduce its holdings of JGBs after last year ending a decade of unconventional stimulus. That trajectory, particularly in upcoming meetings of the BOJ, could be upset by Ishiba's departure, said Rong Ren Goh, a Singapore-based portfolio manager for Eastspring Investments.

"Market participants appear more concerned about the BOJ falling behind the curve, so are likely to focus on the coming two policy meetings in September and October to set the tone for JGBs and the yen," Goh said.