The package includes financial support for small businesses and spending to boost local economies. The government estimates it will help lift the nation's gross domestic product by 0.6 percentage points.
“This is an emergency economic package to deal with a rising yen and deflation,” Finance Minister Yoshihiko Noda told reporters. The extra budget is likely to be submitted to Parliament later this week for final approval.
The Cabinet's approval came as the dollar hovered near a 15-year low against the yen. The greenback stood at 80.69 yen in Tokyo Tuesday after hitting a fresh 15-year low of 80.41 yen the previous day, nearing its post-World War II low of 79.75 set in 1995.
A strong yen poses a major risk to Japan's export-led economy. It cuts the value of repatriated profits for Japanese exporters like Toyota Motor Corp. and Sony Corp., and makes their products less competitive abroad.
Apart from a rising yen, Japan has been long hit by deflation, a situation in which falling prices can drag on corporate profits, paychecks and the overall economy.
The stimulus package also includes funding to secure rare earths needed for advanced manufacturing such as computer disk drives, mobile phones and hybrid car components.
