TOKYO (Reuters) - Japan's government will reduce its plans to issue new bonds this fiscal year by 400 billion to 500 billion yen ($3.3 billion-$4.1 billion) when it crafts an extra stimulus package this month as it aims to pursue both growth and fiscal reform, sources told Reuters.
This would mark a second straight year of reduction in planned government borrowing thanks to higher tax revenue from rising corporate profits, a windfall from Prime Minister Shinzo Abe's stimulus policies dubbed "Abenomics".
The government initially planned to issue 36.863 trillion yen of new bonds, the lowest level in seven years.
The initial budget for the fiscal year that ends in March 2016 was 96.342 trillion yen.
The government and ruling coalition are arranging to compile extra stimulus spending worth 3.3 trillion-3.4 trillion yen, which includes steps to support low-income groups and farmers seen hit by the Trans-Pacific Partnership (TPP) trade deal.
Abe's cabinet is expected to approve the extra budget on Dec. 18, the sources said on condition of anonymity as the spending plan has not been finalised.
The government would not resort to extra bond issuance to fund the extra stimulus. Instead it would tap other sources such as larger-than-expected tax revenue this fiscal year and budget reserves left from the previous year.
The government is expected to revise up the tax revenue estimate by 1.9 trillion yen to a 24-year high of 56.4 trillion yen, taking into account a bigger-than-expected increase in corporate and income tax payments, the sources said.
Non-tax revenue is seen cut by 300 billion-400 billion yen from an initial estimate of 4.954 trillion yen, reflecting expected decrease in the Bank of Japan's payment into the government's coffers due to the bank's plan to replenish its reserves.
The central bank last month unveiled a plan to replenish reserves it sets aside to shield its balance sheet against potential losses that may arise when it seeks an exit from its massive asset purchases.
Writing by Tetsushi Kajimoto; Editing by Chang-Ran Kim