The Organization for Economic Cooperation and Development put pressure on Japan in a policy proposal issued Tuesday to specify concrete measures to restore the country's precarious fiscal health, considered the worst among major developed economies.
"Given the size and duration of fiscal consolidation, Japan faces the risk of a marked rise in interest rates, threatening a banking system that is highly exposed to Japanese government debt," the Paris-based club of 34 wealthy nations said.
Japan should "set out a detailed and credible plan, including spending goals by category and a timetable for tax hikes" to attain its globally pledged goal of budget deficit reduction, the OECD said in the annual report released for the first time since the government of Prime Minister Shinzo Abe was formed Dec. 26.
The administration aims to cut the primary balance deficit to 3.2 percent of gross domestic product by fiscal 2015, or half the level of fiscal 2010, and turn the balance into a surplus by fiscal 2020. A deficit in the balance means the nation can't finance government spending without issuing new bonds.
The latest estimates, however, suggest the goals are almost infeasible as the government's fiscal health has shown little sign of improving.
The Cabinet Office said in late February the government could log a deficit of ¥33.9 trillion, or 6.9 percent to nominal GDP, in fiscal 2013 through March 2014, worsening from ¥25.4 trillion, or 5.2 percent, calculated last August.
The Group of 20 financial chiefs also asked the Japanese government to "define a credible medium-term fiscal plan" in a communique issued Friday following the end of their two-day meeting in Washington.