Abe prepares fresh stimulus measures Japan is readying an extra budget expected to be the largest since the aftermath of the Lehman crisis, as its new government borrows to boost growth in the sluggish, deflation-prone economy. The government is expected to confirm on Friday that it will fund extra spending worth about 2 per cent of gross domestic product. Although Mr Abe gave no details on the size of the package, Japan's Yomiuri newspaper reported that the government's contribution would be worth between Y12tn ($137bn) and Y13tn. That sum would approach the record Y13.9tn supplementary budget unleashed by former premier Taro Aso in April 2009. Addressing media on Tuesday, newly elected Prime Minister Shinzo Abe said that a "flexible" fiscal policy was one of the "three arrows" of his economic strategy, along with "bold" monetary policy and specific measures to raise Japan's potential growth rate, to be unveiled by the middle of the year. The stimulus package, as outlined by economic and fiscal policy minister Akira Amari, would be Japan's "first shot toward economic revival," Mr Abe said. Mr Abe and his team take the reins of a shrinking economy suffering a fall in exports and subdued domestic demand. GDP fell at an annualised rate of 3.5 per cent between July and September following a slight fall in the previous quarter, and most private sector economists expect a third quarterly contraction of about 0.5 per cent to December. According to local media reports, up to Y6tn may be set aside for spending on public works projects - more than the Y4.6tn allocated in the previous administration's initial Y90tn budget for the current fiscal year to March. Including local government and private sector spending, the total stimulus package could weigh in at more than Y20tn, say the reports. The fiscal stimulus was among the key pledges made by Mr Abe's Liberal Democrat party ahead of last month's elections and may help lift real GDP growth to about 2 per cent in the coming fiscal year, say economists. "Shovel-ready" projects such as tunnel repairs and quakeproofing of schools and hospitals are likely to dominate the public works spending, said Kiichi Murashima at Citi in Tokyo. But the scale of the borrowing has stoked concerns that the new LDP administration is returning to its spendthrift ways of its tenure during the 1990s, which added to the national debt burden relative to GDP, which at about 220 per cent at the end of 2012, is already the highest among major economies. This week, the yield on the 30-year Japanese government bond pushed through the 2 per cent threshold for the first time since July 2011. That lift suggests "concern" in the market over an increased supply of bonds as a result of the extra budget, said Chotaro Morita, a strategist at Barclays in Tokyo. Further, there are fears that the annual budget for the next fiscal year, to be drawn up in April or May, will put more emphasis on borrowing than in previous years. Mr Aso, now finance minister, has said the government feels no need to stick to the Y44tn annual cap on new bond issuance that the previous administration had adopted to signal a long-term commitment to restoring Japan's fiscal health. Scrapping that limit could "prompt a greater focus by overseas investors on Japan's Achilles heel, which is its appalling fiscal position," said Yasunari Ueno, chief market economist at Mizuho Securities.