Japan’s Prime Minister today unveiled a promised emergency package designed to revive the Tokyo’s battered stock market and make households feel wealthier and spend more as the country slides into recession.

Taro Aso’s stimulus package — his first serious political move since becoming Prime Minister in September — will see around Y2 trillion worth of special benefits dished out to Japanese households in a bid to kick-start spending habits.

Government lending programmes will be expanded to Y27 trillion, of which about a fifth will be straightforward fiscal spending.

Analysts warned that the package would not work as a fillip to markets unless the Government made good on hints that it would begin intervening to push down the yen.

“It is clear that no sustained global stock market relief rally is going to happen unless the yen and the US dollar stop rallying,” said Christopher Wood, chief strategist at CLSA, the brokerage.

The Government was at pains to show that the huge spending plans did not represent a return to the notoriously wasteful pork-barrel largesse of the past: Mr Aso said he hoped to raise consumption tax within three years.

The emergency measures come amid heightened market expectations that the Bank of Japan is preparing to cut interest rates in half this afternoon. The likely 25-basis point cut will leave rates at 0.25 per cent and just a whisker away from the super-unorthodox Zero Interest Rate Policy (ZIRP) adopted by Japan in the late 1990s.

But Mr Wood, one of the few analysts who correctly predicted the collapse of sub-prime debt and the global credit crisis, added last night that Asia was better placed for revival. “

"The western world faces a structural problem because of its massive indebtedness whereas Asia only faces a cyclical problem. This distinction should prove fundamentally important in the longer term in terms of investment returns,” he said.

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