TOKYO, Dec 22 (Reuters) - Japan's finance ministry plans to reduce sales of government bonds for a third straight year, as growing prospects of a central bank policy shift add pressure on yields.

Market issuance by periodic auctions will be brought to 171 trillion yen ($1.2 trillion) in the fiscal year starting April 2024, down 19.3 trillion yen from this fiscal year, on an initial budget basis, the Ministry of Finance (MOF) said on Friday.

The MOF will bring forward a reduction of 20-year bond issuance to January from April, and the sales of bonds with shorter maturities will be reduced as prospects of the imminent end of the BOJ's negative rate policy squeezes demand.

"The ministry responded flexibly to demand for different durations of Japanese government bonds," said Keisuke Tsuruta, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Investors started shifting away from 20-year bonds as 10-year bonds yield started rising, while demand for short-to-mid-term bonds will be affected if the BOJ ends its negative rate policy."

The BOJ is under pressure to tweak its ultra-loose policy, with inflation having held above the BOJ's 2% target for more than a year.

The central bank in October loosened its grip on a 1% cap on the benchmark 10-year JGB yield, helping it hit 0.97% in November, its highest since May 2013.

The ministry will cut issuance of six-month discount treasury bills, which it started issuing to fund measures to cope with the COVID-19 pandemic, to zero.

The announcement was in line with a Reuters report on Wednesday.

Below are details of the MOF's JGB issuance plan for 2024/25: Maturity FY2024 issue FY2023 initial (trln yen) -------------------------------------------------------------- 40-year 4.2 - 30-year 10.8 - 20-year 12.0 -2.4 10-year 31.2 -1.2 5-year 27.6 -2.4 2-year 31.2 -3.6 Infl-linked 1.0 - Liquidity* 13.2 +1.2 1-yr TBs 38.4 -3.6 6-mo TBs** 0 -8.7 GX bonds 1.4 0 --------------------------------------------------------------- Total 171.0 -19.3

* In liquidity-enhancing auctions, the Ministry of Finance issues additional amounts of existing JGB issues to improve their market liquidity.

** The issuance of six-month bills will be managed flexibly and they will be issued as government discount bills in combination with the government's other short-term funding programme.

($1 = 142.4000 yen) (Reporting by Junko Fujita. Editing by Sam Holmes)