• The Associated Press

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The economy may get another lifeline soon.

Faced with meager growth and a strong yen, leaders are moving toward injecting more stimulus measures to fight a sharp slowdown in momentum. A new package would set Japan apart from the rest of the developed world, which is winding down stimulus steps even as worries grow about a cooling global economy.

Gross domestic product data earlier this week showed Japan grew at an annualized rate of just 0.4 percent in the April-June period, down from 4.4 percent the previous quarter. As a result, the country lost its place to China as the world’s No. 2 economy.

But it will be a tricky task for Prime Minister Naoto Kan, who is also juggling a promise to reduce the country’s massive debt and a possible challenge for leadership of the Democratic Party of Japan next month.

Kan has asked his Cabinet for ideas that limit new spending, suggesting tax and regulatory reforms as potential alternatives.

“Of course we have to consider fresh fiscal spending,” Kan said. But “it seems possible to boost demand or stimulate the economy without depending on fiscal spending.”

Separately, Finance Minister Yoshihiko Noda indicated a cautious stance on taking on more debt, which is almost double the size of GDP.

“It is our mission to both stimulate the economy and restore public finances,” Noda said. “As for whether we need to issue new government bonds (to finance the stimulus), this is something we should determine while closely monitoring economic movements.”

Kan is aiming to compile and approve new measures by the end of September, according to the Nikkei financial daily. The government could tap into a reserve fund in this year’s budget as well as a surplus from last year, which total ¥1.7 trillion, Masaaki Kanno, chief economist at JPMorgan Securities Japan, said in a report.

Japan had posted solid growth numbers since emerging from a recession last year. Robust demand in China and elsewhere in Asia have fueled exports, production and corporate profits. The sudden deceleration in the second quarter, which stemmed from weak domestic demand, came as an unnerving surprise to economists and government officials.

Adding to woes is the yen, which hit a 15-year-high against the dollar last week. While a strong currency boosts consumers’ purchasing power, it poses a major risk to the country’s exporters, such as Toyota Motor Corp. and Sony Corp. When the yen climbs, the value of repatriated earnings fall.

The Nikkei reported Friday the new stimulus package is likely to include measures aimed at helping job hunters find work and supporting small and midsize businesses. It may also incorporate subsidies for green technology companies.

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