The Japanese economy is suffering from deflation and a strong currency; prices keep falling, but consumers hold off spending in hope of lower prices.

Analysts said the key problem is that the yen is at a 15-year high, making exports more expensive.

Earlier this week, the Bank of Japan set interest rates at just above zero.

Japan's Nikkei newspaper said the plan could boost GDP growth by up to 0.6% and help to save jobs.

An extra budget is needed from parliament to fund the stimulus plan. This is expected to be submitted to parliament for debate later this month.

A previous stimulus package, announced last month, was intended to create about 200,000 jobs and shift GDP into positive territory, but was criticised as not going far enough.

At the heart of Japan's woes is the strong yen, which has gained almost 50% in value against the dollar since mid-2007.

Japan has been stuck for the last 20 years in what economists call a "liquidity trap" - falling prices, interest rates stuck at zero, but savings rates remaining stubbornly high.

BBC