TOKYO (REUTERS) - Japan's economy will likely grow 2.5 per cent in the fiscal year starting in April, the government said today, as Prime Minister Shinzo Abe's ambitious fiscal and monetary policies boost domestic demand and a rebounding overseas economy helps exports.

The Cabinet Office's economic forecast, issued annually and revised every summer, will serve as a basis for the compilation of the government's budget, a draft of which is likely to be approved by the cabinet this week.

The government's projection for real gross domestic product is roughly in line with the Bank of Japan's estimate issued last week, but it is stronger than the median estimate for 1.8 per cent growth in a Reuters poll.

The new forecast is also stronger than the previous projection of 1.7 per cent growth made last summer.

"Exports are expected to grow as the global economy is likely to recover moderately, which would help corporate activity. The government measures will also help capital spending," an official from the Cabinet Office said.

"Also, employment is likely to increase, helped by the economic measures, which would boost private consumption." Abe led his Liberal Democratic Party to a landslide victory in December and his campaign for aggressive budget and monetary stimulus has pushed the yen lower and sparked a stock market rally on hopes that a weaker currency will boost exports.

Earlier this month, the government approved a 10.3 trillion yen (S$140 billion) economic stimulus plan, the biggest spending boost since the global financial crisis.

The government also said Japan was expected to achieve nominal gross domestic product growth of 2.7 per cent in fiscal 2013, exceeding real GDP growth for the first time in 16 years.

There will be a rush of consumer spending before a planned sales tax hike in April 2014, which will boost growth by 0.4 percentage point for the next fiscal year, it said.