TOKYO - Japanese Prime Minister Sanae Takaichi said on Monday she would work on setting a new fiscal target extending through several years to allow more flexible spending, essentially watering down the country's commitment to fiscal consolidation.

Takaichi also said she would not rule out a cut to Japan's sales tax as a future option, reinforcing market expectations that her administration will prioritise steps to reflate the economy over fixing worsening public finances.

The remarks signal a major shift from past administrations that stuck to annual fiscal targets and emphasised the need to maintain market trust in Japan's finances, even as they deployed sizable spending packages.

"We'll ensure to maintain market trust in Japan's sustainable finances. But unless we boost investment, the economy won't grow," Takaichi told parliament.

The administration's focus on expansionary policies could complicate the Bank of Japan's decision on how soon to resume a rate-hike cycle that has been paused due to uncertainty over the economic fallout from higher U.S. tariffs.

"It is extremely important for monetary policy to be guided in a way that achieves strong economic growth and price stability," the government said in a draft outline of its economic package seen by Reuters, urging the BOJ to cooperate with government efforts to stimulate demand.

The BOJ kept interest rates steady last month but its board saw a growing case to raise rates in the near-term, a summary of opinions at the meeting showed on Monday.

The central bank next meets for a rate review on December 18-19, around the time the administration finalises a draft budget for next fiscal year.

"I don't think there is a strong chance the BOJ will hike rates at the December meeting, which precedes cabinet approval of next year's budget," said Toru Suehiro, chief economist at Daiwa Securities.

NEW FISCAL GOAL EYED

Since taking office last month, Takaichi has pledged to compile a package of ...