Japan's 10-year bond yield hits near 17-year high ahead of key election

By Junko Fujita

TOKYO, July 15 (Reuters) - Japan's 10-year government bond yield rose to a near 17-year high in early trade on Tuesday amid worries about the nation's fiscal health ahead of a closely monitored national election at the end of this week.

The 10-year JGB yield JP10YTN=JBTC rose to as high as 1.595%, its highest level since October 2008.

The market weighed the risk of the defeat of the Liberal Democratic Party and its coalition partner Komeito at the upcoming upper house election on July 20.

A potential defeat could empower opposition parties that have pledged in their campaign platforms to cut or abolish the sales tax.

If the LDP-led coalition loses the majority, the 10-year bond yield could rise to as high as 1.8%, the highest level since mid-2008, said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

"This means how the fiscal health has worsened and prices have risen since then," Inadome said.

"Now the Bank of Japan owns about half of the JGBs and that has capped the yields from rising further. Back then, the BOJ's ownership was much smaller."

Japan's ruling coalition will likely lose its majority in the upper house election, the Asahi newspaper said on Tuesday.

Prime Minister Shigeru Ishiba's administration has seen approval ratings slide as the rising cost of living, including the soaring price of Japan's staple rice, hit households.