Japan yesterday approved an $11 billion stimulus package to tackle deflation and shore up a recovery threatened by the surging yen, as the government heaped pressure on the central bank to do more.

The previously announced plan, approved yesterday by the Cabinet of Prime Minister Naoto Kan, includes initiatives to boost consumption and employment for graduates, invest in green industries and offer support for small business.

The fresh stimulus package of 915 billion yen (€8.56 billion) will be financed by reserve funds, and is expected to lift the country’s gross domestic product by about 0.3 per cent, creating around 200,000 jobs.

The plan also identifies the yen’s current strength as “a problem that cannot be unaddressed”, stating that the government “will take determined action, including intervention, when needed”.

After weeks of trying in vain to talk the yen lower through verbal warnings, the government’s tone has hardened ahead of a ruling-party leadership election next week that could see the Prime Minister’s job change hands yet again.

Mr Kan faces a challenge from veteran powerbroker Ichiro Ozawa in the Tuesday vote. Mr Ozawa has been outspoken in demanding action on the yen, which this week hit 15-year highs versus the dollar.

The government yesterday increased pressure on the Bank of Japan to take additional easing measures by saying it “expects the central bank to take further necessary policies”.

The central bank has held its key rate at a super-low 0.1 per cent since the height of the financial crisis.

It recently expanded a multi-billion dollar loan scheme in a bid to help the economy combat the impact of a strong yen.

Revised data yesterday showed Japan’s gross domestic product grew by an annualised 1.5 per cent in the April-June quarter, well above an initial estimate of 0.4 per cent.

Mr Kan said yesterday that the government may take on extra liabilities of as much as one trillion yen outside its budget if economic and employment conditions require further measures.

“The most important issue is the speed,” Mr Kan told ministers. “The government will take quick and flexible steps including drawing up an extra budget if necessary.”

Under the plan, the government will spend 450 billion yen on consumption-boosting measures, including incentives for environmentally friendly home appliances, home renovations and maintaining low-interest housing loans.

About 175 billion yen will be allocated to job placements for new graduates and creating more employment.

Another 120 billion yen will be spent to help small- and mid-sized companies and to encourage low-carbon businesses while 165 billion yen will be used to bolster anti-disaster measures in rural areas.