Suga has faced growing calls from lawmakers, including ruling party heavyweight Toshihiro Nikai, to boost spending to cushion the economic blow from the COVID-19 pandemic.

"The government has reserves set aside, which it can tap for emergency spending" to cope with the pandemic, Suga told parliament, in response to a lawmaker calling for an extra budget for the current fiscal year that began in April.

Government officials have said there is enough money to meet pandemic-related costs with a 5 trillion yen ($46 billion) pool of funds set aside under this fiscal year's budget.

But some lawmakers have called for another relief package as fresh state-of-emergency curbs and a slow vaccination programme inflate medical costs and dampen already weak consumption.

Dai-ichi Life Research Institute expects the third state of emergency to push down consumption by 1.1 trillion yen and lead to job losses of around 52,000 positions three months from now.

Suga's administration is cautious of compiling another spending package given Japan's huge public debt which, at twice the size of its economy, is the biggest among advanced nations.

The government is also clinging to hope that strong U.S. and Chinese growth will underpin global demand for Japanese goods, helping offset the pandemic blow to domestic consumption.

Stimulus packages funded by extra budgets are typically timed before or around elections, as politicians appeal to voters with promises of big spending.

Whether and when the government compiles an extra budget may therefore depend on the timing of a lower house election, some analysts said. That must be held by October but could come beforehand if Suga sees an increased chance of winning by dissolving parliament early and calling a snap poll.

Japan's economy likely shrank in the January-March quarter. Analysts expect any rebound to be modest in the current quarter as new strains of the novel coronavirus that causes the COVID-19 disease force the government to extend state-of-emergency curbs.

($1 = 108.9300 yen)

(Reporting by Leika Kihara; Editing by Ritsuko Ando and Christopher Cushing)

By Leika Kihara