JGBs edge up on Treasuries, capped before 20-yr tender

* JGBs edge up on overnight surge in Treasuries

* JGB upside capped ahead of 20-year auction on Thursday

By Shinichi Saoshiro

TOKYO, Nov 19 (Reuters) - Japanese government bonds edged up on Wednesday following an overnight rise in U.S. Treasuries, but gains were capped ahead of a 20-year JGB auction the following day.

JGB gains were also limited as the market braced for the government to increase bond issuance in the next fiscal year that starts in April.

Analysts expect Japan to increase JGB issuance as the country is projected to have a tax revenue shortfall and stimulus packages may be needed to help a flagging economy.

Data released on Monday showed that Japan's gross domestic product contracted 0.1 percent in the third quarter, confirming the economy had slipped into its first recession in seven years.

But market watchers said participants were beginning to run low on short-term incentives, limiting trading as a result.

"Macroeconomic factors are lessening in impact as the market looks beyond for other incentives," said Takafumi Yamawaki, a senior fixed-income strategist at BNP Paribas.

"The Nikkei may have to drop below a threshold like 8,000 -- or rise above 9,000 -- to stir the market into action," said Yamawaki.

Tokyo's Nikkei stock average inched up 0.1 percent to 8,340 in early trade on Wednesday, with fears of a global recession outweighing a positive impact from overnight gains on Wall Street.

December 10-year JGB futures rose 0.06 point to 138.67.

The five-year yield was unchanged at 0.885 percent.

The benchmark 10-year yield dipped 0.5 basis point to 1.475 percent and the 20-year yield fell 1 basis point to 2.155 percent.

Analysts said caution toward Thursday's 900 billion yen ($9.28 billion) 20-year auction had eased slightly on expectations that the new super-longs would see decent demand from index players.

Such players follow certain indexes to allocate their bond investments, and a popularly followed bond index is set to extend significantly in duration.

U.S. Treasuries surged on Tuesday, boosted by a record decline in producer prices that added to evidence that inflation pressures are fast disappearing as energy prices slump. (Editing by Chris Gallagher)