Benchmark JGBs muted, set for 5th weekly fall on political, fiscal woes

TOKYO, July 25 (Reuters) - Benchmark Japanese government bonds (JGBs) were muted on Friday, but remained on course for a fifth straight week of declines as concerns deepened over political instability and the country's finances.

The JGB market was flat after a sell-off earlier in the week pushed the yield on 10-year debt to 1.6%, a level last seen in October 2008. The yield has risen each week since closing at 1.39% on June 20.

Investors are concerned about a political shift towards looser fiscal policy after Prime Minister Shigeru Ishiba's coalition lost its upper house majority in an election last Sunday.

Opposition parties, which campaigned on increased spending and tax cuts, made notable gains, and numerous media reports have said Ishiba is preparing to resign.

"There will be a fair amount of uncertainty for the time being about the shape of the government and its fiscal policy direction," Noriatsu Tanji, chief bond strategist at Mizuho Securities, said.

"Concerns about fiscal expansion are likely to persist in the market for now."

Also in the spotlight is the Bank of Japan's (BOJ) policy meeting next week, though traders widely expect that any potential rate hike will come in October or later.

The 10-year JGB yield JP10YTN=JBTC fell 1.5 basis points (bps) to 1.585%.

The two-year yield JP2YTN=JBTC eased 0.5 bp to 0.84%, while the five-year yield JP5YTN=JBTC slipped 1 bp to 1.125%.