The government's backsliding on promises to rein in spending puts the Bank of Japan in a bind, limiting its scope to expand its massive monetary stimulus when the economy needs it, or ultimately to wind it back without causing chaos in the bond markets.
Government's slow progress in moving towards a balancing of its books has been a disappointment for the central bank, which frets that failure to tackle Japan's huge debt - bigger even than Greece's relative to its economy - could force it to keep buying government bonds for longer than it wants.
But if markets lose confidence in public finances, that would also make it harder for the BOJ to top up asset purchases without stoking fears it is bank-rolling public debt, analysts say.
Government still finances nearly 40 percent of its annual budget through debt, yet the latest draft of Japan's fiscal strategy, issued by Premier Shinzo Abe on Monday, lacked a mandatory cap on spending and relies on what critics say are overly optimistic economic estimates.
"It's hard to deny the government kicked the can down the road," said a source familiar with the central bank's thinking. "I don't think Japan can just laugh away what's happening in Greece."