Japan's government approved a US$1.02 trillion draft budget yesterday for the next fiscal year that aims to nudge tax revenues above new bond sales for the first time in four years, but still relies on borrowing to cover 46.3 percent of its spending.

The first full-year draft budget compiled under Prime Minister Shinzo Abe, who led his Liberal Democratic Party back to power last month with promises of economic revival, marks symbolic improvement after years of deterioration.

With the 92.6 trillion yen (US$1.02 trillion) in spending, the government trimmed the size of its draft budget from the previous year for the first time in seven years, taking into account government funding for basic pension payouts.

Still, the budget size hovered around record levels, underlining the difficulty Abe's government is facing in striking a balance between economic stimulus and fiscal reform.

Taken together with a 10.3 trillion yen extra stimulus plan signed off earlier this month and financed in more than half by new bond sales, it drives borrowing to new highs, pushing Japan's record high debt further into uncharted territory.

"We managed to make the annual budget slimmer than before," Finance Minister Taro Aso said.

"Without the extra budget, the economy would fall into a severe situation in April-June," the finance minister added.

In fiscal year 2013/14 starting in April, the government plans to issue new bonds worth 42.8 trillion yen, below this year's 44.2 trillion yen initial target. But combined with the extra budget borrowing of 5.2 trillion, Abe's government will borrow 48 trillion yen, though technically the extra budget borrowing will be booked in the 2012/13 accounts.

Tax revenue is targeted to rise 750 billion yen to 43.1 trillion yen.