The Japanese government approved a medium-term fiscal reform plan on Thursday, aiming to reduce its budgetary deficit by 17 trillion yen (177 billion U.S. dollars) by the fiscal year of 2015.

In order to attain fiscal consolidation targets, the Japanese government promised to avoid increasing the issuance of new debt in the same period, reduce wasteful spending and achieve a reasonable allocation of financial resources.

It also committed to limiting the budget of social security, including medical insurance and pension.

While the reform plan lacks details about how to cut spending and increase revenue, the key to Japan's fiscal consolidation is thought to be a hike of consumption tax.

Prime Minister Shinzo Abe's cabinet will make a final decision no earlier than September on whether to raise the tax rate from current 5 percent to 8 percent by next April.

If the tax hike bill is passed, consumption tax rate in Japan will be raised to 10 percent eventually in October 2015 to compensate for the huge expenditure on social security caused by an aging population.

The government also approved guidelines on budget for the next fiscal year, which requires all ministries and agencies to cut spending by 10 percent on public works.

The medium-term fiscal reform plan and budget guidelines will be officially adopted after the prime minister's consumption tax decision. Endi

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