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TOKYO: Japan plans to issue 4.2 trillion yen ($37 billion) of 40-year government bonds in the new fiscal year, two sources with direct knowledge of the matter said, a 17% increase that comes even as the government plans to cut its bond issuance overall.

It marks a third straight year of increases in issuance of the 40-year bonds, which are closely watched by the market, and reflects solid demand from life insurers at the long end of the yield curve, said the sources.

Prime Minister Fumio Kishida’s inaugural debt issuance plan will see overall calendar-based sales of Japanese Government Bonds (JGBs) at around 200 trillion yen, or down about 20 trillion yen from this year, the sources said, reflecting the new premier’s push to keep a lid on debt.

The sources declined to be identified because the information has not been made public. The finance ministry declined to comment. “This issuance plan including 40-year bonds appears largely in line with investors’ demand reflecting supply-demand in the market, although the increase in 10 year bonds was a bit surprise,” said Chotaro Morita, chief bond strategist at SMBC Nikko Securities.

“Overall it sends a message that planned sales should go smoothly without facing pressure from the market as it leaves interest-bearing bond issuance neutral compared with this year.”The increase in the 40-year bonds would mean sales of around 700 billion yen at auctions every other month, from auctions of 600 billion yen now, the sources said.

While increasing the issuance of 40-year bonds, the government also ditched an idea that it had been considering of issuing the super-long bonds every month, the sources said. To reduce the cost of rolling over debt, issuance of Treasury discount bills will be trimmed in the next fiscal year by more than 10 trillion yen, the sources said.

Details of the plan for debt issuance have not been previously reported. The government will keep issuance steady of five-year, 20-year, 30-year and inflation-linked 10-year bonds, the sources said.

The government also plans to boost liquidity-enhancing auctions by 600 billion yen in the next fiscal year, the sources said. In liquidity enhancing auctions, the Ministry of Finance issues additional amounts of existing JGBs to improve liquidity.

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