Japan tax revenue falls short, may issue more bonds

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* Tax revenue fall is biggest annual decline on record

* Tax revenue undershoots target for 3rd straight year

* Final balance in red for 1st time in 7 years

By Tetsushi Kajimoto

TOKYO, July 1 (Reuters) - Japan looks increasingly likely to issue more bonds after saying on Wednesday that tax receipts for the past financial year fell short of target, leaving the nation's final balance in the red for the first time in seven years.

Japan already plans to fund a huge amount of fiscal stimulus as it seeks to lift its economy out of its worst recession since World War Two, including record issuance of 44.1 trillion yen in new bonds.

The Ministry of Finance said tax revenue stood at 44.3 trillion yen ($458 billion) for the last financial year, below the 46.4 trillion yen forecast in the budget and a 13 percent fall from the previous year, the biggest annual decline ever.

It was also the third straight year that tax receipts have fallen short of target, as companies and households were hit hard by the recession.

The final balance, which is the difference between tax, other revenues, and outlays for debt-servicing costs and reserves, fell into a deficit of 718 billion yen.

Many analysts have said that say falling tax revenues could nudge the world's second-largest economy into further increasing bond issuance.

A MOF official declined to comment on the prospects of more bond issuance.

Japan's fiscal condition is the worst among major economies, and the government expects the ratio of its long-term debt to gross domestic product to hit 170 percent by the end of 2009/10.

Standard & Poor's affirmed Japan's AA credit rating on Wednesday, with a stable outlook, saying Japan could withstand rising fiscal pressure from government stimulus measures. [ID:nT354905]

Prime Minister Taro Aso's cabinet approved on Wednesday a record 52.7 trillion yen ceiling on budget spending for the fiscal year starting in April 2010, an increase from this year's main budget due mainly to rising social security costs. [ID:nT72072] ($1=96.81 Yen) (Reporting by Tetsushi Kajimoto; Editing by Edwina Gibbs)