TOKYO, June 10 Reuters Japan39;s government will highlight the need to work closely with the central bank and guide policy flexibly in the wake of soft consumption and uncertainty over the inflation outlook, a draft of its annual economic blueprint seen by Reuters showed.

Monetary policy has entered a new stage, which required the government and the Bank of Japan to continue working closely and guide policy flexibly in accordance to economic and price developments, according to the draft.

By keeping inflation stably around the BOJ39;s 2 target, policymakers will seek to create an environment where wages rise faster than inflation on a sustained basis, the draft said.

The government draft will be presented to ruling party lawmakers for deliberations, before being finalised at a Cabinet meeting on June 21.

In the draft, the government said consumption lacked momentum with the outlook on prices unclear due in part to the effect of recent yen declines.

It also flagged lingering overseas risks such as the fallout from monetary tightening by central banks across the globe, and worries about soft Chinese growth.

Japan is facing a critical moment in shifting away from a deflationprone economy that prioritised cost cuts, towards one where higher productivity allows more companies to keep hiking prices and wages, the draft said.

The government will submit legislation to next year39;s parliament to facilitate smoother passthrough of costs in industries like construction,…