Japan's cabinet on Tuesday agreed Y7,200bn in stimulus spending intended to shore up a fragile economic recovery with measures including support for employment, easier financing for smaller companies and promotion of environmental protection.
Announcement of the package, which is to be implemented in the first quarter of 2010, had been delayed since last week after a tiny but vocal coalition partner in the new Democratic party-led government demanded more generous spending.
Japanese media said the pressure from Shizuka Kamei, leader of the People's New Party and minister for financial services, resulted in agreement to raise the value of the package by Y100bn from Y7,100bn backed by DPJ ministers on Friday.
Following its historic election victory in August, the DPJ government has struggled to balance the need to find funds to finance its generous manifesto welfare promises, with concerns about the government's huge debt burden and worries about the sustainability of Japan's recovery from its sharpest post-war recession.
A government statement said the package included Y3,500bn in new spending to be directed at "supporting the regions," Y800bn for environmentally related policies, and Y600bn for promoting employment.
Around Y2,700bn in funding for the new package is expected to come from spending trimmed from a previous stimulus budget announced by the former ruling Liberal Democratic party before its historic defeat in August's general election.
While the government also hopes to tap contingency funds it gave few details of funding for the package beyond saying it would "do its utmost" to avoid new bond issuance. Hirohisa Fujii, finance minister, said the extra Y100bn added to the package since Friday would be financed through the issue of special construction bonds.
DPJ leaders had denounced the LDP package as ill-considered and wasteful, and had hoped to use the savings to help finance implementation of manifesto pledges such as child allowances and cuts to highway tolls in the fiscal year starting April .
However, worries about a potential "double dip" in the economy and fears the new government might be blamed if the recovery falters prompted the decision to spend the savings this fiscal year instead.
Worries about the economy are likely to be highlighted on Wednesday, when government statisticians unveil their revised estimate of third quarter gross domestic product growth. Economists expect the latest estimate to be considerable below the robust 1.2 per cent quarter-on-quarter expansion reported last month.
Japanese government bond sales for the current fiscal year are now expected to total over Y53,000bn, far exceeding tax revenues of around Y40,000bn, Mr. Fujii told journalists. However, Mr. Fujii said he stood by plans to limit new bond issuance in the year from April 2010 to under Y44,000bn.
"Japan's fiscal situation is very serious," Mr. Fujii said.