Japan Unveils Huge Economic Stimulus Package

Mark Stone, Asia Correspondent

Japan's government has approved an economic stimulus package worth 10.3 trillion yen (£72bn) in an attempt to fix its economic crisis.

Prime Minister Shinzo Abe, who took office in December, hopes the move will pull the world's third largest economy out of yet another recession and create tens of thousands of new jobs.

"These measures will push up Japan's real GDP by around 2% and create jobs for approximately 600,000 people," he told a news conference in Tokyo.

"The economic strategy is full-fledged, proving our strong will and clear commitment towards an economic reform."

Mr Abe is serving his second term as leader having been Prime Minister for a year between 2006 and 2007. 

"Unfortunately, the previous administration failed to work out how to boost growth and expand the economic pie," he added.

"It is vital that we have an economic strategy that can create jobs and raise incomes to sustain growth."

Part of the stimulus will form an infrastructure fund designed to boost construction jobs and in turn, provide a boost to the economy.

The move will increase Japan's mounting debt in the short term but it is hoped it will kick-start the economy on a longer-term basis.

The announcement prompted a 1.4% jump in Japan's benchmark Nikkei 225 stock price index.

The strength of the Japanese yen has contributed to the country's economic stagnation, hitting companies with important export markets.

Electronic giants like Sony, Toshiba and Sharp once had a global footprint but are now struggling because their goods are more expensive overseas.

The stimulus also includes a substantial increase in Japan's defence budget.

In what is the first increase in a decade, defence spending will be boosted by 100 billion yen (£690m).

The move is a clear reflection of increasing tensions between Tokyo and Beijing over a small group of islands in the East China Sea which both countries claim as their own.

The dispute with China could prove very problematic for Japan's economic recovery - China is Japan's largest single customer but recent tensions have prompted Chinese boycotts of Japanese goods.

Analysts say it is hard to see how Japan can recover if Chinese consumers are not buying Japanese products, especially given that the European and US markets are still struggling.