Japan has pledged to create five million new jobs through a 10-year economic growth strategy centred on green technology, healthcare, tourism and closer links with Asia.

The centre-left government of Prime Minister Naoto Kan, who took office last week, has pledged to end two decades of stagnation in Asia's biggest economy and achieve stable real economic growth above two per cent a year. In the short term, the government aims to beat deflation by late fiscal 2011 and boost weak demand while bringing unemployment down from about five per cent now to below four per cent soon and then down to three per cent.

Japan is also eyeing lowering the corporate tax rate, from an effective 40 per cent now to the average level of major industrialised nations, which is around 25 per cent, possibly from fiscal 2011, the strategy paper says.

Mr Kan, a former left-wing activist who most recently served as Finance Minister, has promised a "third way" approach for the economy, which is expected to slip behind China soon to global number three spot.

The Prime Minister has identified the "first way" as the heavy infrastructure spending of the 1980s and 1990s, much of it pork-barrel projects that drove up public debt and left many "white elephant" projects of dubious economic value.

Mr Kan has also rejected as the "second way" the "excessive market fundamentalism" of former Prime Minister Junichiro Koizumi which aimed to slim down government but also weakened social safety and widened income disparities.

In a speech last week, Mr Kan outlined his "third way" policies - an ambitious approach that would strengthen domestic demand and jobs while also boosting the social security system and reducing the public fiscal deficit.

Mr Kan has pledged to reduce the world's biggest public debt mountain, which is nearing 200 per cent of GDP, and has warned of the risk of a Greece-style meltdown for Japan if the problem is left unaddressed.

He has said the DPJ would call for a full debate on tax reform and did not rule out the possibility of doubling the five per cent sales tax.

His party has pledged to slice the country's public deficit in half or less by the year to March 2016, with a longer term ambition of eliminating it by fiscal 2020.

Japan - with an ageing and shrinking population - already collects less than half the taxes it needs to cover its spending.