The government upgraded Thursday its forecast for Japan's economic growth in fiscal 2023 to a real 1.5 percent, projecting consumer spending will rise on higher pay packets.

The Cabinet approved the projected expansion in inflation-adjusted gross domestic product, which is up from a forecast of 1.1 percent made in July. Fiscal 2023's overall GDP is expected to reach 558 trillion yen ($4.23 trillion), exceeding the record 554 trillion yen for fiscal 2018.

Photo taken Feb. 25, 2017, from the roof of the Roppongi Hills building complex shows Tokyo's Shinjuku area, the Japanese capital's subcenter. (Kyodo) ==Kyodo

Nominal GDP is also projected to rise 2.1 percent from the previous fiscal year to reach a new high of 571 trillion yen.

Private consumption, which accounts for more than half of the economy, is expected to rise 2.2 percent in fiscal 2023 on the back of wage rises.

Prime Minister Fumio Kishida has repeatedly called on firms to increase pay in line with surging inflation as part of his goal to achieve growth and wealth distribution through his "new form of capitalism."

The consumer price index for fiscal 2022 was forecasted to rise 3.0 percent on the year before, the highest in 32 years, when inflation came in at 3.3 percent in fiscal 1990.

Fiscal 2023 is expected to see lower inflation of 1.7 percent with the help of government policies to reduce increasingly expensive household energy bills from January to September.

Among the rises projected in Japan's economic outlook, companies are expected to increase investments by 5.0 percent. Exports and imports are also set to rise by 2.4 and 2.5 percent respectively, in a sign that concerns of a downturn in the world economy are having a limited effect on exports.

Growth was revised down from 2.0 percent to 1.7 percent for fiscal 2022, with the effects of surging prices among the factors cited.