*

Finance minister says will carry out appropriate debt

management

while talking with market

*

Nikkei reported that finance ministry surveyed dealers on

reducing issuance

*

Japan's 30-year yield rose to fresh record high on

Wednesday

By Kevin Buckland

TOKYO, Aug 29 (Reuters) - The longest-dated Japanese

government bond yields pulled back further from record highs on

Friday following a report that the Ministry of Finance is

considering further reducing issuance of such debt.

The finance ministry has sent out surveys to primary

government bond dealers to get their views on a potential

reduction in the issuance of ultra-long-term bonds, Nikkei

reported on Thursday, citing multiple market sources, ahead of a

meeting of primary dealers next month.

Japanese Finance Minister Katsunobu Kato said on Friday that

his ministry will continue to engage with bond market

participants and carry out appropriate debt management policies.

The 30-year JGB yield sank 2.5 basis points

to 3.19%, falling for a second day after pushing to an all-time

peak of 3.235% on Wednesday. Bond yields rise when prices fall.

The 20-year yield eased 1 bp to 2.615%, after

reaching a 26-year top last week at 2.665%.

The 10-year yield was flat at 1.615%,

stabilizing after rising to a 2008 high of 1.36% on Wednesday.

The stakes for an already closely watched 30-year bond

auction set for September 4 rose markedly following an

unexpectedly soft two-year auction result on Thursday, with a

gauge of demand dropping to the lowest since 2009.

A regular Bank of Japan bond purchase operation on Wednesday

also revealed weakness in the super-long sector, despite

relatively robust results for shorter maturities.

Long-dated bonds have suffered this year amid a dearth of

buyers, with life insurers, in particular, retreating after

steady purchases in previous years to fulfill new regulatory

requirements, which have now been met.

At the same time, the Bank of Japan's quantitative

tightening is steadily reducing the central bank's support for

prices across maturities.

The finance ministry reduced super-long bond issuance in

July to help address supply-demand imbalances following a surge

in yields to then-record highs.

However, after a period of calm, long-dated yields began

rising again around an upper house election that saw Japan's

ruling coalition lose its majority as support grew for

opposition parties pushing for deficit-financed consumption tax

cuts.

"A decision to further taper issuance of super-long JGBs

might - like the previous reduction - help stabilize super-long

rates to some extent in the short term," Mizuho Securities'

senior market economist, Yusuke Matsuo, wrote in a client note.

"However, the domestic political situation is now more

turbulent than when the last cuts were made, and there are also

a variety of fiscal risk factors," he said.

"Even if issuance is tapered, the upward pressure on

super-long rates is likely to warrant caution for the

foreseeable future."

In shorter-dated JGBs on Friday, the five-year yield

was flat at 1.155%, while the two-year yield

ticked up 0.5 bp to 0.875%, a five-month peak.

(Reporting by Kevin Buckland; Editing by Mrigank Dhaniwala)