By Takaya Yamaguchi and Tetsushi Kajimoto

TOKYO (Reuters) -Japan will issue around 35.5 trillion yen ($258.52 billion) in new government bonds for the fiscal 2023/24 annual budget, government sources told Reuters on Tuesday, adding to the industrial world’s heaviest public debt.

The new borrowing is less than the 36.9 trillion yen last year, marking the second straight year of declines as authorities seek to curb borrowing costs, the sources said.

A record annual national tax revenue estimate above 69 trillion yen would help reduce the amount of new debt, thanks in part to a weak yen boosting exporters’ profits, the sources said on condition of anonymity because the budget plan has not yet been made public.

Still, Japan’s overall budget proposal for the 2023-24 fiscal year would likely top 114 trillion yen ($831.27 billion) extending a record amount for the 11th straight year.

Policymakers are struggling to tighten their fiscal belts, pressured by increased military spending and welfare costs needed to support a rapidly ageing population.

Finance Minister Shunichi Suzuki on Friday said Japan must stick to its target of a primary budget surplus by the fiscal year beginning April 1, 2025, even as a planned increase in defence spending worsens public finances.

Prime Minister Fumio Kishida’s government will double annual defence spending to 2% of gross domestic product within five years, pushing military outlays to record highs just as bulging welfare spending strains public finances.

Japan needs to strike a balance between addressing regional security concerns over China, Russia and North Korea, and dealing with a debt burden more than twice the size of its $5 trillion economy.

Kishida’s Cabinet plans to compile a draft annual budget as soon as Friday, with the aim of presenting it to parliament in early 2023 and winning approval by the end of the current fiscal year on March 31.

Several rounds of heavy stimulus have bloated fiscal spending by 1.4 times the amount of an initial budget spending plan in the past three years.

That has likely made it even more difficult to achieve a primary budget balance excluding new bond sales and debt servicing costs by the fiscal year through March 2026.

($1 = 137.3200 yen)

(Reporting by Tetsushi Kajimoto and Takaya Yamaguchi; Additional reporting by Elaine Lies amd Kantaro Komiya; Editing by Christopher Cushing, Shri Navaratnam and Sam Holmes)