Japan pumps in another £40bn to prop up economy

Japan today approved nearly £40 billion of stimulus spending it hopes will spur the country's lacklustre economy as it fights deflation and a strong yen.

The package includes financial support for small businesses and 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," said finance minister Yoshihiko Noda. An extra budget detailing the spending is likely to be submitted to parliament this week for final approval.

The Cabinet's approval came as the dollar hovered near a 15-year low against the yen. The dollar stood at 80.69 yen in Tokyo today after hitting a 15-year low of 80.41 yen the previous day, nearing its post-Second World War low of 79.75 in 1995.

A strong yen poses a major risk to Japan's export-led economy. It cuts the value of repatriated profits for exporters such as Toyota and Sony, 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, pay and the overall economy.

The stimulus package also includes funding to secure rare earth minerals needed for advanced manufacturing such as computer disk drives, mobile phones and hybrid car components.

Japanese industry has been shaken by China's sudden halt of rare earth exports to Japan in possible retaliation for Tokyo's arrest of a Chinese fishing boat captain near disputed islands in early September.

The disruption has prompted Japan to seek new suppliers of the exotic metals other than China, which virtually monopolises the global supply.