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The outstanding balance of government bonds by March 31, 2017, the end of fiscal 2016, will amount to 929.9 trillion yen if deflation continues and economic growth remains sluggish through the end of fiscal 2006, according to a Finance Ministry estimate released Thursday.

That compares with a projected 450.5 trillion yen at the end of fiscal 2003, according to the ministry’s report, which was submitted to a panel of the ruling Liberal Democratic Party.

The ministry based the calculation on the assumption that zero growth in nominal terms will continue.

In such a scenario, interest payments on outstanding government bonds in fiscal 2016 would reach 16.38 trillion yen, compared with 9.18 trillion yen forecast for fiscal 2003, the report says.

It says that even if the economy begins to grow with a nominal 2.5 percent expansion in fiscal 2006, the outstanding amount of government bonds would still total 899.6 trillion yen in fiscal 2016.

Interest payments will rise to 15.89 trillion yen in that case, the report says.

JGB yield at new low

The yield on the key 10-year Japanese government bond hit a record low Thursday while the benchmark futures contract rose to a record high.

Both cash bonds and futures drew strong demand amid continuing deflation and growing concerns over Iraq, traders said.

In interdealer trading, the yield on the No. 245 10-year, 0.9 percent government bond slid 0.025 percentage point from the previous day to a record low of 0.75 percent.

The previous record closing low for a benchmark 10-year issue was 0.775 percent, registered Wednesday and Oct. 2, 1998.

JGB futures prices also surged, with the benchmark March contract for 10-year bonds ending 0.18 point higher at 143.11 on the Tokyo Stock Exchange to top the previous all-time closing high of 142.93 marked Wednesday.

The benchmark contract’s yield was down 0.014 percentage point to 1.18 percent.

Market watchers said banks and life insurance firms continued to scoop up government bonds as the end to Japan’s deflation is nowhere in sight and Japanese share prices remain at their lowest levels in nearly two decades.

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