Japan debt service costs seen at record Y22.4 trln

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TOKYO, Aug 28 (Reuters) - Japan's debt servicing costs are expected to hit a record 22.4 trillion yen ($204.7 billion) in the fiscal year to March 2010 due to rising debt, the Ministry of Finance said on Thursday.

With Japan's debt reaching roughly 1-½ times GDP, the worst ratio in the industrialised world, its debt servicing costs take up a quarter of the government's annual spending.

The Finance Ministry's preliminary estimate is 2.3 trillion yen, or 11 percent, higher than the current year.

The ministry said it calculated the figure on the assumption that the 10-year Japanese government bond yield <JP10YTN=JBTC> will be around 2.7 percent next fiscal year.

The 10-year JGB yield has stayed between 1.2 and 1.9 percent so far this year.

The ministry usually makes extremely conservative estimates when compiling the budget for debt servicing.

The government made the estimate as ministries plan to file rough budget requests for next fiscal year, starting next April 1, to the Finance Ministry by Friday. It will compile a final draft of next fiscal year's budget in December.

The total budget request is estimated at 86.1 trillion yen, up from this year's planned spending of 83.1 trillion yen and the second-largest ever, due mainly to rising social security costs.

While the government is keen to curb debt issues, the spectre of a recession has led the government to compile an economic package this week to help people and firms cope with rising costs. The package will be unveiled on Friday.

The budget figures may be revised before a final draft of next year's budget is announced in late December. ($1=109.42 Yen) (Reporting by Tetsushi Kajimoto; Editing by Michael Watson)