JAPAN has unleashed a new barrage of stimulus at its stagnant economy as debate over how to revive growth heats up ahead of a general election.

The stimulus package announced by the cabinet on Friday totals Y880.3 billion ($A10.34 billion).

It is earmarked mainly for spending on social programs, employment creation and support for small and medium-size enterprises.

The economy shrank 3.5 per cent in July-September, and many economists say they expect a further contraction in the current quarter. This would land Japan in its fifth recession in 15 years.

LDP leader Shinzo Abe contends much stronger action is needed to help pull the economy out of the doldrums and has urged the central bank to move more aggressively to end deflation, which has hindered growth for much of the past two decades.

The economy contracted 0.9 per cent in July-September, and many economists forecast a further shrinking in the current quarter.

Industrial output rose 1.8 per cent in October from September, though it fell 4.3 per cent from a year earlier. Consumer prices were flat at 0 per cent, but that was an improvement over the previous month’s minus 0.1 per cent.

October brought no improvement in labour conditions, with unemployment unchanged at 4.2 per cent and the ratio of jobs available falling to 80 per 100 jobseekers from 81 the month before.

Tensions over a territorial dispute with China have bit into exports that already were limping due to weak global growth and the prolonged strength of the Japanese yen against other currencies, which makes them relatively expensive in overseas markets.

Consumer demand, a major driver of growth, is weak. Retail sales fell 1.2 per cent in October from a year earlier, the government reported on Thursday. A slight improvement in seasonally adjusted terms was mainly due to rising prices for food and energy, thanks to a hike in electricity rates.

Weak spending on cars and consumer appliances suggests consumer sentiment is weakening due to worries over job prospects, Capital Economics said in a research note. It argued in favour of longer-term structural reforms to nurture growth, given Japan’s massive government debt, which is more than twice the country’s gross domestic product.

“Although this is an age-old tactic for winning votes, we think it won’t do Japan any favours in the medium term,” it said.

“Growth is becoming increasingly reliant on government support. Further stimulus could reduce the private sector’s ability to pick up the slack in the future.”

ref: http://www.news.com.au