Japan on Friday approved a US$5.3 billion cash injection to boost the stuttering economy, a move likely to add pressure for more central bank measures with a general election looming on the horizon.
In a package that earmarked cash for the coastguard amid an island dispute with China, the cabinet agreed the 422.6 billion yen in emergency spending, with money to be coming mainly from reserve funds rather than new debt.
"We hope the package will lead to an exit from deflation and jumpstart the economy," Chief Cabinet Secretary Osamu Fujimura told a news conference Friday in Tokyo.
The relatively small aid package was expected to add pressure on the Bank of Japan to extend its 80 trillion yen asset-purchase scheme after a policy meeting next week, analysts said, as Japan's post-disaster economic recovery slows.
"The actual impact of the package on the real economy appears to be limited," said Masatoshi Sato, strategist at Mizuho Investors Securities.
"But it can be a message to the market and the Bank of Japan ahead of its policy-making meeting, saying the government is taking its own action," Sato said.
It also highlighted growing stress on Japan's national budget after Tokyo said last month it would suspend 5.0 trillion yen in spending due to a political row that has left the government facing a cash crunch that could see it run out of money within months.
The opposition wants Noda to set a date for elections before approving a bond-issuance bill needed to help pay for about 40 per cent of Tokyo's spending in the fiscal year to March.
Under the package announced Friday, more than 260 billion yen will be for regions hit hard by last year's quake-tsunami disaster and nuclear crisis.
About 17 billion yen will be used to beef up Japan's coastguard at a time of heightened tensions over the ownership of an East China Sea island chain believed to sit atop natural resources.
On Thursday, four Chinese government ships spent several hours in territorial waters around the disputed Tokyo-controlled islands, as the Asian giants reportedly get set for talks on their long-standing row.
The extra budget measure announced Friday is the first in the current fiscal year to March, after Tokyo earlier approved trillions of yen in reconstruction and disaster aid.
The package will also be aimed at boosting energy and environment-related industries as well as agriculture, forestry and fisheries.
Some funds will help promote stem-cell research after Japan's Shinya Yamanaka won this year's Nobel Prize in medicine for his work in the field.
Another package is expected next month.