By Takaya Yamaguchi

TOKYO, Dec 21 (Reuters) - Japan's government is set to auction 147 trillion yen ($1.21 trillion) of bonds in the next fiscal year that starts in April, down from this year's 152.6 trillion yen under the initial plan, reflecting rising tax revenue, sources told Reuters.

That would make the coming fiscal year the third in a row in which the government has cut debt sales through auction, with fresh borrowing falling to an eight-year low of 34.43 trillion yen from this fiscal year's initially planned 36.9 trillion yen.

The plan would bring the total JGB issuance to 162.2 trillion yen, including those sold to retail investors and the Bank of Japan, down 7.8 trillion yen from this fiscal year's initial plan, the sources said on condition of anonymity because the plan has not been finalised.

With the BOJ's heavy bond buying causing a shortage of bonds available for investors, the government is set to slow the pace of declines in JGB sales through auction by bringing forward bonds to be issued beyond the next fiscal year, they said.

The BOJ has committed itself to increasing its holding of JGBs by 80 trillion yen a year, excluding one-year government bills.

The government plans to increase the issuance of 40-year Japanese government bonds by 400 billion yen. It will reduce its offering of 20- and five-year JGBs by 1.2 trillion yen each, while cutting two-year bonds by 2.4 trillion yen, they said.

($1 = 121.3300 yen) (Writing by Tetsushi Kajimoto; Editing by Subhranshu Sahu)