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Prime Minister Naoto Kan on Monday instructed his Cabinet and ruling party members to draw up an extra budget for the current fiscal year to finance a stimulus package aimed at accelerating efforts to fight deflation.

The instruction came at an executive meeting between the government and the Democratic Party of Japan, with Kan eyeing further steps to improve employment conditions and promote other measures under the nation’s growth strategy, Deputy Chief Cabinet Secretary Tetsuro Fukuyama said.

Government sources said the supplementary budget for the year through March could amount to more than ¥4 trillion, while Kan is expected to refrain from issuing any new government bonds to fund the fiscal 2010 extra budget as part of his efforts to restore the nation’s fiscal health, the worst among major developed countries.

Kan’s Cabinet officially approved a ¥917 billion stimulus package last week. Emergency spending backed by the extra budget, subject to Diet deliberations, will come as the second in a series.

The economy has been suffering chronic deflation with high unemployment and sluggish consumer and business spending. The government also needs to address the negative impact from the recent sharp rise of the yen against other major currencies, which has hurt Japanese exporters.

The formation of the supplementary budget is associated with growing calls from opposition parties as well as from some in the ruling camp for the government to do more to stimulate the economy.

The DPJ-led coalition has said it will listen carefully to voices from the opposition camp, which controls the Upper House while Kan’s ruling bloc holds a majority in the more powerful Lower House.

Kan also said at the Monday meeting he wants to promote talks between the ruling camp and opposition parties on how to compile the extra budget, Fukuyama said.

Without issuing new bonds, the government could finance the supplementary budget from such sources as tax revenues and the previous fiscal year’s budget surplus.

Chief Cabinet Secretary Yoshito Sengoku added to the view that Kan is not considering issuing new bonds.

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