By Tom Forrest | 11 January 2013

The Japanese government has approved a 10.3trn yen (€87bn) economic stimulus package in an attempt to boost its flagging economy and create 600,000 jobs.

Prime minister Shinzo Abe said the package should add two percentage points to Japan’s real economic growth and would be spent on infrastructure spending and business incentives. It would be funded by the issue of additional government bonds.

Abe, the leader of the Liberal Democratic Party, took office last month promising tough measures to help push the economy out of recession. He pledged to take steps to weaken the value of the yen and deal with the country’s persistent problem of deflation.

‘Unfortunately, the previous administration failed to work out how to boost growth and expand the economic pie,’ Abe said. ‘It is vital that we have an economic strategy that can create jobs and raise incomes to sustain growth.’

Japan, the world’s third-largest economy, has suffered a dip in exports due to weakening economies in the US and the eurozone. Exports to China have also been affected by an ongoing territorial dispute.

The Nikkei index responded positively to the announcement, but analysts remain to be convinced that the stimulus package will have more than a short-term effect.

‘Huge spending of this size will, of course, have a one-time effect on boosting the economy. But if it fails to ignite a sustained recovery, Japan could fall into a vicious cycle of needing more stimulus spending,’ said Taro Saito, senior economist at the NLI Research Institute.