FILE PHOTO: Japan's new Prime Minister Sanae Takaichi speaks during a press conference at the prime minister's office, in Tokyo, Japan, October 21, 2025. Eugene Hoshiko/Pool via REUTERS/File Photo

By Makiko Yamazaki

TOKYO, Dec 2 (Reuters) - An advisory panel to Japan's finance minister adopted a much softer stance in its budget recommendations on Tuesday, a change in approach to fiscal discipline that comes amid a reflationary push by new Prime Minister Sanae Takaichi.

The fiscal system council this year urged the government to review Japan's primary budget balance annually. That contrasts with last year's call for a swift swing to a surplus and a return to pre-pandemic spending levels.

At that time, the council said it is "essential not only to achieve a primary balance surplus in fiscal 2025, but also to treat that as a milestone and continue progress without backsliding."

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 dialling back its decade-long, ultra-loose monetary policy that has kept borrowing costs near zero.

But Takaichi argues that a strong economy is a prerequisite for sound fiscal policy, and that her spending plans will boost household income and corporate earnings.

Her government last week finalised 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.

Growing concerns about the nation's rising debt burden have sent super-long government bond yields to record highs.

The primary budget balance, which excludes new bond sales and debt-servicing costs, is a key gauge of how much policy measures can be financed without issuing debt.

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 favours 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.

($1 = 155.9000 yen)

(Reporting by Makiko Yamazaki; Additional reporting by Kentaro Sugiyama; Editing by Edwina Gibbs)