Japan plans to double inflation-linked bond issue in 2014/15: government sources

TOKYO (Reuters) - The Japanese government is planning to double its issuance of inflation-linked bonds to 1.2 trillion yen ($11.7 billion) next fiscal year, government sources said on Tuesday, in a sign of confidence the economy is emerging from 15 years of deflation.

Inflation-linked bonds, whose principle increases with rising consumer prices, are used by investors in many countries as a hedge against inflation. Their yields also serve as a gauge of inflation expectations.

But Japan, mired in falling prices, has found little demand in recent years for inflation-linked bonds, even halting their sales for several years in the wake of the global financial crisis from 2008.

Now, however, the Finance Ministry is finding demand for inflation-linked Japanese government bonds as Prime Minister Shinzo Abe's aggressive reflationary policies begin to gain some traction, the sources told Reuters.

The ministry is working on a JGB-issuance plan, to be announced later this month, that would double the inflation-bond amount for the year starting next April from this fiscal year's level, the sources said.

If there is strong demand from big investors like the Government Pension Investment Fund, the ministry could increase the amount further, they said.

($1 = 102.9850 Japanese yen)

(Reporting by Takaya Yamaguchi; Writing by William Mallard; Editing by Dominic Lau and Richard Pullin)