Japan's economy 'very severe': PM

TOKYO: Japanese Prime Minister Yukio Hatoyama said Tuesday the world's number two economy was still in a tough position, as his cabinet formally approved a new stimulus spending package.

"Japan's economy is in a very severe situation. Some people say it has hit bottom but we cannot be at all optimistic," Hatoyama told a cabinet meeting called to discuss ways to spur economic growth.

The economy returned to positive growth in the second quarter of the year, limping out of a brutal year-long recession.

But the government reported last week that Asia's biggest economy grew at a much slower rate than previously thought in the third quarter and there are worries that renewed deflation and a strong yen could derail the recovery.

Japan's cabinet on Tuesday approved an extra budget -- including about 80 billion dollars in new spending -- to ward off a potential double-dip recession, in line with an announcement last week.

The budget plan is expected to be submitted to parliament for approval sometime from January.

The pump-priming is putting increasing strains on Japan's public finances.

The Japanese central government's primary budget deficit is set to rise to a record 34.204 trillion yen (384 billion dollars) in the fiscal year ending in March 2010, Parliamentary Secretary of Finance Hiroshi Ogushi said Tuesday.

The shortfall would far exceed a 13.1-trillion-yen deficit anticipated when the budget was being drawn up late last year.

In an effort to keep the country's soaring debts under control, the government said it aimed to limit the issuance of new government bonds to about 44 trillion yen in the next fiscal year starting in April.

The Organisation for Economic Cooperation and Development has warned that Japan's public debt is set to soar to more than 200 percent of gross domestic product by 2011.

Even before the current economic downturn, Japan's debt was the highest among industrialised nations after a series of huge stimulus spending packages during the so-called "lost decade" of economic stagnation in the 1990s.