Japan's new government bond issuance may exceed the 44 trillion yen ($527 billion) cap in place for years depending on the size of an extra budget needed to revive the economy, a senior Liberal Democratic Party official said on Monday. "There's a possibility it may exceed the cap. But we also need to be mindful of the need to restore fiscal discipline," Shigeru Ishiba, secretary-general of the LDP, restored to power in Sunday's general election, told public broadcaster NHK.

On calls for the Bank of Japan to pump more money into the economy to beat deflation, Ishiba said that expanding money supply could well create inflation, but the problem in Japan was that the extra money was not being spent. "We need to assess why money isn't being spent in Japan. Simply expanding supply of money won't do," Ishiba said.

LDP head Shinzo Abe, to take over as prime minister next week, has pledged big-scale stimulus in an extra budget for this fiscal year to revive an economy now in mild recession. Despite soaring social welfare costs to fund an ageing population, Japan has capped annual new bond issuance at 44 trillion yen for years to curb public debt that has grown to double the size of its economy.

Copyright Reuters, 2012