Stanley Fischer, International Monetary Fund (IMF) first deputy managing director, told Miyazawa he thought it wise to consider downside risks to the economy, which has yet to pull decisively out of its worst post-war downturn, a finance ministry official said.

"He said it was necessary to think about an early supplementary budget," said the official, briefing reporters on the meeting, which capped an annual IMF review of Japan's economy and policies.

Fischer was quoted as noting that Japan regularly compiles extra budgets every year and that the government should consider one early for the fiscal year that began in April, to avoid a dropoff in fiscal support.

Miyazawa reiterated that gross domestic product will likely show a hefty rebound in January-March but that he was unsure about April-June. Any decision on an extra budget can await the April-June GDP data, due in September, he said.

Miyazawa's top bureaucrat, Nobuaki Usui, told a regular news conference: "We will continue to watch the economy and respond appropriately. That says it all." Fischer declined to comment on the 30-minute meeting as he left the ministry, telling reporters only that he would speak at a Tokyo news conference on Tuesday.

Miyazawa and Fischer did not discuss the size of any supplementary budget for the year that began in April, the official said. But many economists note that the government would have to compile a 4.0 trillion yen ($37.42 billion) supplement to the initial budget just to keep fiscal spending even with last year's total.

Some Japanese politicians, facing a general election in less than a month, have begun discussing preliminary fiscal steps to compiling a supplementary budget. But Miyazawa has sought to curb such talk, since Japan's public debt is on course to hit 130 percent of GDP next year, the worst in the industrial world.

He was quoted as reiterating to Fischer that he hopes to begin curbing new debt issuance from fiscal 2001/02.

The official also quoted Fischer as saying he had had "useful" talks with Bank of Japan Governor Masaru Hayami on the BoJ's policy of pushing short-term interest rates virtually to zero. But the official declined comment on the substance of those discussions.

Earlier on Monday, Hayami reinforced his eagerness to end the 15-month-old zero-rate policy, telling business leaders and economists that a corporate rebound was starting to spread to household spending and playing down recent stock market drops.