FILE PHOTO: FILE PHOTO: Banknotes of Japanese yen are seen in this illustration picture taken September 22, 2022. REUTERS/Florence Lo/Illustration/File Photo/File Photo

By Leika Kihara

TOKYO (Reuters) -Japan must take steps to maintain market trust in its finances even as it ramps up spending to revive growth, private-sector members of a key government panel said on Thursday.

The economy contracted in the third quarter, while inflation remains elevated at around 3% due mainly to rising food prices, they said.

"The government must therefore take necessary and sufficient fiscal measures for investment on crisis management and growth areas," the members said in a proposal submitted to the panel.

In doing so, it was "most important to ensure Japan's fiscal sustainability and market trust" over its finances such as by cutting existing wasteful spending, the proposal said.

Aside from stably lowering Japan's debt-to-gross domestic product (GDP) ratio, Japan must use various measures in guiding fiscal policy and "always be mindful of interest rates, currency and stock market developments," the proposal said.

Government bond prices and the yen have fallen recently on market expectations Prime Minister Sanae Takaichi's big spending package will lead to more debt issuance and prolonged inflation.

The call for fiscal sustainability was included in a joint statement by the four private-sector members including former Bank of Japan Deputy Governor Masazumi Wakatabe and economist Toshihiro Nagahama - known as reflationist aides of Takaichi.

Their proposals are taken into account in deliberations at the Council on Economic and Fiscal Policy (CEFP), which oversees Japan's fiscal blueprint and long-term economic policies.

(Reporting by Leika KiharaEditing by Shri Navaratnam)