Japan plans to cut state spending next year, bringing the budget to its lowest level in eight years by cutting money earmarked for defence and overseas aid.
The Prime Minister has been trying to restore some economic balance
In the initial 2006 budget submission, the Ministry of Finance said it wanted to spend 79.69 trillion yen (£388bn; $684bn), 3% less than in 2005.
Japan also said it planned to sell fewer state-backed bonds next year.
State spending and borrowing have increased during a decade of economic stagnation and recession.
The amount of debt currently owed by Japan is more than the value of its annual gross domestic product.
Prime Minister Junichiro Koizumi is focusing on streamlining Japan's economy with an eye on cutting debt, as well as making state organisations more efficient in order to cut the burden on the budget.
Mr Koizumi, whose term expires in September next year, called the budget plan "extremely well-trimmed".
Finance Minister Sadakazu Tanigaki warned that despite signs of improvement, Japan's economy was still shaky.
"It's like when you go mountain climbing and you think you've come quite a way, but there are much higher peaks," he explained.
"We've now laid the groundwork for reforming the structure of revenue and spending," he said. "Still, Japan's fiscal health remains in extremely bad shape, so we can't let our guard down."