Japan's government should stick with fiscal discipline targets that aim to return the budget to a primary surplus by fiscal year 2020 to ensure trust in public finances, a leading government panel said on Tuesday.

The government should also limit new bond issuance as much as possible when compiling the budget for fiscal 2013 to maintain trust in the government bond market, the Council on Economic and Fiscal Policy (CEFP) said, according to a draft distributed to reporters.

The CEFP also reiterated that the government plans to lay out more detailed plans to improve public finances by the middle of this year, as Prime Minister Shinzo Abe embarks on a bold plan to end deflation with large-scale fiscal spending and aggressive monetary easing.

Abe's government faces a delicate task because pledges to increase fiscal spending could cause bond yields to rise, which could hurt the economic outlook.

Japan's government has been aiming to halve the ratio of the primary budget deficit to gross domestic product in fiscal 2015 from the level in fiscal 2010. A primary budget balance excludes debt servicing costs and income from bond sales.

The next step is to achieve a primary budget surplus, which is likely to require major spending cuts and steps to increase revenue as Japan's public debt burden is already the worst among major economies at more than twice the size of its $5 trillion economy.

For fiscal 2013, which starts in April, Finance Minister Taro Aso has said he does not want new bond issuance to exceed the 44 trillion yen ($490 billion) initially planned for the current fiscal year.

($1 = 89.7950 Japanese yen)

(Reporting by Stanley White; Editing by Edmund Klamann)