UPDATE 2-Japan's PM fine-tunes spending plans as way out of COVID-19 slump

* Eyes growth in digital, green sectors, regions, childcare

* Suga says ‘coronavirus response’ is top economic priority

* Gives no timeframe for achieving balanced budget goal (Adds Suga comment, detail)

TOKYO, May 25 (Reuters) – Japanese Prime Minister Yoshihide Suga on Tuesday unveiled a plan for targeted government spending, steering a careful course between the twin aims of reviving economic growth after a coronavirus-induced slump and balancing the budget.

Suga identified four areas – digital transformation, a greener society, regional revival and childcare – as engines of new growth that the heavily indebted state would allocate funds to.

“While putting our utmost priority on the coronavirus response, we are keeping an eye out for a post-coronavirus era where we will lead the world with strong economic growth,” Suga said.

“We won’t abandon the flag of achieving a primary budget surplus,” he also told his top economic advisory panel, while setting out mid-year policy objectives that also included doubling foreign direct investment to 80 trillion yen ($735 billion) by 2030.

The panel, the Council on Economic and Fiscal Policy (CEFP), will address the draft policy roadmap in more detail at a meeting in June.

Suga’s draft made no mention of the timeframe for achieving budget balance, suggesting a tug of war between fiscal hawks focusing on reform and doves calling for more spending to bring Japan out of the economic doldrums.

The government aims to bring the primary budget, which excludes new bond sales and debt servicing costs, into surplus the fiscal year ending in March 2026.

However, many analysts doubt that target can be met given the massive spending needed to address the economic challenges arising from the pandemic.

Japan’s public debt is 2.5 times the size of its economy, making it the heaviest among industrialised nations.

In a sign of continuing fiscal pressure, the Nikkei business daily said on Tuesday that Japan may establish a new fund to provide payouts to households hit by the pandemic.

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