IMF encouraged that Japan skipped 'burdensome proposals' in fiscal package

By Andrea Shalal

WASHINGTON, Dec 4 (Reuters) - The International Monetary Fund on Thursday said it was encouraged that "some of the more fiscally burdensome proposals" that had been under discussion were not included in the fiscal package announced last month by Japan.

The fiscal package was smaller than expected, resulting in a smaller impact on next year's deficit, IMF spokeswoman Julie Kozack told a regular news briefing, amid growing concerns about Japan's rising debt burden that have sent super-long government bond yields to record highs.

She said the new fiscal package did not change the IMF's view that Japan's debt to gross domestic product ratio would be on a declining path next year.

"What we have seen so far in Japan on the fiscal side is that the fiscal deficit has been steadily declining, and that has helped along with strong GDP growth to a steady decline in Japan's debt-to-GDP ratio," Kozack told reporters.

"So, in the near-term, we do expect Japan's debt dynamics to remain favorable," she said, adding that Japan did face longer term spending pressures from higher interest payments, an aging population and military spending.

With debt at more than twice the size of its economy, Japan is widely viewed as needing to fix its tattered public finances. That task has become more urgent as the Bank of Japan is dialing back its decade-long, ultra-loose monetary policy that has kept borrowing costs near zero.

Kozack said the IMF had been supportive of the Bank of Japan's recent monetary policy decisions, and its policy remained appropriately accommodative.

The Japanese government last week finalized an 18.3-trillion yen ($117 billion) supplementary budget to fund a massive stimulus package, most of which will be financed through new debt issuance.

New Prime Minister Sanae Takaichi said last month she would drop the idea of using the annual primary budget balance as Japan's fiscal consolidation goal to allow more flexible spending. Instead, she favors setting a new goal that extends through several years.

Earlier this year, the government projected a primary budget surplus would be attained sometime through fiscal 2025 to 2026, which, if achieved, would mark the first time since the goal was introduced in the early 2000s.