Japan has set targets to rein in its national debt, the biggest in the industrialised world.
New Prime Minister Naoto Kan has made fiscal reform a top priority, saying that without it the country could face the risk of a Greece-style crisis.
However, the government has given no specific ideas of how it will reach its long-term goal of balancing its budget.
Japan also raised its growth forecast for the year to March to 2.6%, compared with an earlier 1.4% estimate.
That would be the first time the country's GDP had expanded by more than 2% since 2006.
Growth in the year to March 2012 is predicted to be 2%.
"Thanks to the government's stimulus packages, strengthening in business profitability and improvements in employment and household income are spreading to an increase in private demand," the Cabinet Office said.
"If this cycle continues, Japan's economy is expected to go on a track towards an autonomous recovery."
However, it warned that deflation was still a problem - with prices not expected to to stop falling until at least next year.
ConfidenceJapan has been borrowing money for two decades, trying to bring its economy out of stagnation.
But although its debt is now estimated at about twice the size of its GDP, some economists believe the fiscal situation is not as bad as it appears.
This is largely because Japan has a trade surplus, and it is still able to borrow money at some of the lowest interest rates in the world.
But the government has acknowledged that if Japan has to borrow more from abroad, the higher interest rates demanded could tip the country into the abyss.
"We must prevent a situation like Greece, where Japan loses the confidence of the bond markets, pushing interest rates higher and leading its finances into a state of collapse," it said in its debt-tackling plan.
The plan states it will bring the budget back into surplus by the end of the decade.
To achieve it, the government has put a cap on the amount of money it spends and borrows.
Raising consumption tax is also under consideration - but probably not for several years.
The BBC's Roland Buerk in Tokyo said that it was Japan's ageing population that most threatened the country's long term future.
"Much of the government's debt is held by the Japanese themselves, but as workers become pensioners they may start spending their nest eggs," he said.
