* Ogushi says fiscal prudence most important challenge
* Ogushi: BOJ should act appropriately with govt on deflation
* Japan forex stance in line with G7 statement (Adds details)
By Yoko Nishikawa
TOKYO, Jan 20 (Reuters) - Japan's budget for the fiscal year starting on April 1 is a stimulative one and the government has no plans for further fiscal measures to prop up the fragile economy, a junior finance minister said on Wednesday.
Bond investors are worried about Japan's bulging debt, which is approaching 200 percent of gross domestic product, and fear the 4-month-old government will spend more to bolster the economy ahead of a mid-year election.
"We have absolutely no intention of taking steps recklessly and pouring out public debt," Parliamentary Secretary of Finance Hiroshi Ogushi told Reuters in an interview.
Ogushi, a 44-year-old lawmaker from the ruling Democratic Party, said fiscal prudence was the greatest challenge, adding that he would continue to communicate with market participants to ensure the market could absorb issuance of Japanese government bonds.
Japan has barely emerged from its deepest recession since World War Two, and the government fears that deflation and weak demand may push the economy back into recession, though many economists say a double-dip recession is now unlikely.
The government may also be tempted to ramp up spending ahead of the election to try to win back voters turned off by a funding scandal linked to a leading member of the ruling party, some analysts say.
Faced with a tough balancing act between economic stimulus and fiscal prudence, Prime Minister Yukio Hatoyama's government has crafted a record $1 trillion budget for fiscal 2010/11 while maintaining a self-imposed cap on new bond issuance to help fund the budget.
"In the past, we set initial budgets at around the same size and then compiled extra budgets if we needed more spending, but it's slightly different this time," said Ogushi, who has played a key role in crafting state budgets since the Democratic Party-led government took power last September.
"The initial budget (for next year) contains stimulative factors... we are not considering (an extra budget) now."
KAN KEEN ON FISCAL PRUDENCE
Some market players see Naoto Kan, who became finance minister two weeks ago, as being less hawkish than his predecessor, who quit for health problems.
Ogushi, however, dismissed such talk.
"Some members of the foreign media have called him 'expansionist Kan' but Minister Kan has been paying close attention to the need for fiscal prudence... He has said we need to look for wisdom, not money," Ogushi said.
Japan's government will put together a medium-term fiscal reform strategy in the first half of this year.
Ogushi said there were various options for fiscal targets, not just primary balance targets as previous governments have set, adding that the government wants to set fiscal consolidation plans that are easy and clear to understand.
One model for Japan could be Britain's Public Service Agreement, which sets out priorities that the government wants to achieve via policy, he added.
Ogushi repeated the government's mantra that the Bank of Japan should work together with the government to overcome deflation, adding he wanted the central bank to act appropriately. But he added the independent BOJ should decide its own operations.
On currencies, Ogushi said Tokyo's stance was in line with the Group of Seven statement, adding that such a stance remained unchanged under the new minister, Kan. ($1=91.15 Yen) (Additional reporting by Sumio Ito and Tetsushi Kajimoto; Editing by Hugh Lawson and David Dolan)