Washington –

Japan should avoid broad tax cuts and cash handouts, as they could worsen the country's already precarious fiscal conditions, International Monetary Fund spokesperson Julie Kozack said Thursday.

"Our advice to Japan is that, given this limited fiscal space, it's essential that ... any fiscal response to shocks is both temporary and also targeted," Kozack told a regular news conference in Washington. "Generalized subsidies and tax cuts, in our view, should be avoided."

The suggestion came after Sunday's election in the House of Councilors, the upper chamber of parliament, resulted in a disastrous loss for the ruling bloc, likely increasing pressure for greater fiscal spending.

Tackling inflation was a major campaign issue in the Upper House race. The ruling Liberal Democratic Party and its junior coalition partner, Komeito, pledged to give cash handouts while opposition parties called for reducing or abolishing the consumption tax.

Japan's long-term interest rates rose in interdealer trading after the election due to worries about fiscal expansion. The nation's outstanding debt is the highest among major economies, standing at more than double the country's gross domestic product.

"Japan has limited fiscal space ... because of high public debt," Kozack said, recommending that any fiscal stimulus measures to address economic shocks should be temporary and targeted at vulnerable households and companies.

Broad tax cuts and benefits are "not an efficient use of Japan's limited fiscal space," the spokesperson added.

She said Japan should urgently develop a "clear fiscal consolidation plan," considering that Japan's outstanding debt will likely increase further due to growing interest payments on Japanese government bonds amid rising interest rates, and that social security costs will inevitably rise due to the aging population.