By Leika Kihara
TOKYO, Dec 17 (Reuters) - Japan must pursue proactive spending, rather than excessive fiscal tightening, that will boost growth and tax revenues, Prime Minister Sanae Takaichi said on Wednesday.
"When I say proactive fiscal policy, I am talking about strategic deployment of fiscal stimulus," Takaichi said. "This doesn't mean we will resort to reckless expansion of spending," she said in a statement read out at a panel on economic policy hosted by business lobby Keidanren.
The remarks come as the benchmark 10-year Japanese government bond yield hit an 18-year high on Wednesday, on concerns the Takaichi administration's big spending plans could worsen Japan's already dire finances.
At the panel, former Bank of Japan Deputy Governor Masazumi Wakatabe said the government must raise the country's neutral rate of interest - or the level that neither stimulates nor cools growth - by boosting the economy's potential growth through fiscal spending and a growth strategy.
"If Japan's neutral rate rises as a result, it would be natural for the BOJ to raise interest rates," said Wakatabe, who is currently a private-sector member of the government's top economic council.
"The BOJ, however, must avoid raising rates prematurely or withdrawing monetary support too much," he added.
(Reporting by Leika Kihara; Editing by Jacqueline Wong)
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