Japan's Cabinet has approved plans for a massive budget increase to boost the economy. It wants to spend 85 trillion yen ($825bn) in the next fiscal year which begins in April 2000.

This will plunge the country further into debt, creating the highest budget deficit in the industrialised word. Nearly 40% of the budget will be financed by issuing government bonds.

Tokyo officials hope that their spending plans will finally trigger a recovery of the world's second-largest economy, which has suffered its most severe post-war recession.

Finance Minister Kiichi Miyazawa said the economy needed one more push to get the economy moving again.

"We would like to contribute to the economic recovery, since we have not yet achieved the initial goal" of such a recovery, Mr Miyazawa said.

The Japanese economy has been one of the biggest victims of the Asian crisis, falling by nearly 5% in 1997-1998.

But economists cautioned that the public works spending in the budget may not boost the economy as much as hoped.

"In terms of quantity, it includes a large public works spending and it will underpin the economy. But the problem is its quality," said Hisahi Yamada of the Japanese Research Institute.

In the red

The new spending plans are likely to take national gross debt to 132.9% of gross domestic product (GDP), while the budget deficit will rise to 9.4%.

The next budget year starts in April 2000.

To finance the programme, the government wants to tissue a record 85.87 trillion yen in Japanese government bonds.

Financing the debt will be made even harder by stubbornly low tax revenues, which are depressed because of weak economic activity.

But it is helped by the high savings rate in Japan, which means that Japan will not have to turn to foreign lenders to fund its deficit.

Japanese households save around 30% of their income, a far higher percentage than most other industrial countries.

Recovery packages

The government has so far financed nine major stimulus programmes designed to boost economic activity.

They are credited with pulling the country out of its worst post-war recession, albeit it at a cost - 120 trillion yen ($1.17 trillion).

However, as each government programme ended, so did economic activity. Weak personal spending by Japan's consumers is mostly to blame for the duration of the slump.

In the latest quarter, the Japanese economy contracted by 0.9% - although it is hoped that growth will be positive for the year as a whole.