By Daniel Leussink and Tetsushi Kajimoto
TOKYO (Reuters) - Japan's next budget will combine "growth-oriented" fiscal policy with the central bank's easy monetary stance, in line with expectations that the heavily indebted government will take advantage of ultra-low interest rates to boost spending.
A budget outline presented to the government's top economic advisory panel on Wednesday underscored the delicate balance the government needs to strike between shoring up growth to keep a fragile economic recovery on track and making fiscal reforms.
It comes as lawmakers pile pressure onto the government to compile a big spending package totalling 10 trillion yen (£71.7 billion) to rev up growth.
The budget outline said the government should take flexible and "all possible" economic steps, including an additional budget for the current fiscal year, which ends March 31.
That will be combined with the annual budget for fiscal year 2020/21, beginning April 1, to implement spending seamlessly over a 15-month period.
This could mean any additional spending is spread over the next fiscal year, rather than a single big shot with this fiscal year's extra budget as sought by some ruling party lawmakers.
"With these steps, we strive to achieve not just a near-term stimulus but also private demand-led sustainable growth," the outline said. "We will strengthen wise spending that will make the most effective use of spending."
Japan has the industrial world's largest public debt, more than twice the size of its $5 trillion economy.
Nevertheless, a prolonged low-rate environment due to the Bank of Japan's monetary easing could encourage lawmakers to call for more spending as long as nominal interest rates undershoot nominal growth, helping lower the debt-to-GDP ratio.
The outline also said Japan should achieve a primary budget surplus excluding new bond sales and debt servicing costs by the fiscal year to March 2026, while stably lowering the debt-to-GDP ratio.
(Reporting by Daniel Leussink & Tetsushi Kajimoto; Editing by Catherine Evans)
