Prime Minister Yukio Hatoyama held a fourth meeting of the Government's Revitalization Unit at the Prime Minister's Office, on Dec 02, 2009. Bureaucrats have been forced to defend their budgets at public meetings.

Japan on Tuesday announced a new $80.6 billion - - ¥7,200 billion - -  stimulus package, to support the fragile economy.

Prime Minister Yukio Hatoyama’s new government said the package, which amounts to about 1.5 percent of Japanese GDP (gross domestic product), will spend $39 billion to aid regional economies and pay for public works projects.

Environmental programs such as incentives to purchase energy-efficient equipment will receive $9 billion, and measures to increase employment have been allocated $6.8 billion.

The government will also provide loan guarantees for small companies to ease the credit crunch, the cabinet said in a statement.

Last week, the Bank of Japan announced a $112 billion credit lending facility to increase liquidity in the financial system.

Some of the $80.6 billion will come from funds directed from the previous administration’s budget, and Japan will avoid selling new government bonds as much as possible, it said.

The ratio of government debt to GDP stood at 183.1 percent as of September, the highest level among major economies. The OECD expects the ratio of the country's budget deficit to GDP to rise to 7.4 percent from 2.7 percent, on the back of previous economic stimulus packages.

Currently, most of Japan's public debt is financed domestically and interest rates have been at or close to zero for years but this scenario may also change in coming years.

Annual borrowing as a percentage of GDP averaged 9.7 percent in the 1980s; 8.6 percent in the 1990s and 4.2 percent from 2000 to 2009

SEE: Finfacts article, Aug 2009: Japan’s economy in valley of tears with record public debt heading for 300% of GDP

Japan's government is worried about a potential "double dip" in the economy, and in advance of Upper House elections in 2010, fears it would be blamed if the recovery falters.

On Wednesday, the government will issue its revised estimate of third quarter GDP (gross domestic product growth.) A downward revision is expected from the 1.2 percent quarter-on-quarter growth reported last month.

Japanese government bond sales for the current fiscal year from April 1st, are expected to exceed ¥53,00 billion, compared with tax revenues of around ¥37,000 billion, Finance Minister Hirohisa Fujii told reporters. However, he said he still plans to limit new bond issuance in the year from April 2010 to under ¥44,000 billion.

"Japan's fiscal situation is very serious," Fujii said.

The International Monetary Fund forecasts that Japan, the world’s second- largest economy, will shrink 5.4 percent this year.