The Economic Planning Agency said the move would boost economic growth in the current financial year to 0.6%, higher than earlier forecasts of 0.5%.

This is the first time the Japanese agency has upgraded its GDP forecast in 15 years.

The package will cover spending on building new infrastructure, stabilising the financial system, helping small business, creating jobs as well as financing housing and caring for the elderly.

It was approved by Prime Minister Keizo Obuchi's Cabinet on Thursday morning.

Fighting back

The package is the latest in a series of measures aimed at ensuring Japan's recovery from its deepest economic downturn since the end of World War II.

Though unemployment is coming down, it is still considered high by Japanese standards.

The jobless rate is now 4.6%, down from a record 4.9% earlier this year.

Peter Morgan, an economist for HSBC Securities welcomed the announcement.

He said: "Given the signs of recovery that we've seen in the private economy, probably they don't need to do any more.

"Certainly, we needed a package to keep public works going - after the initial budget ran out, that's the most important contribution of the package. Other things will hopefully have a positive effect at some point.

"One concern is that a lot of stuff announced is not being implemented because local governments have fiscal constraints."