April 10 (Bloomberg) -- Japan’s Prime Minister Taro Aso may today unveil a record 15.4 trillion yen ($154 billion) stimulus package to help revive an economy headed toward the worst recession since World War II.

The ruling Liberal Democratic Party will propose the government spend about 3 percent of gross domestic product on the environment, education, child care and measures to support the job market and companies, according to a document obtained by Bloomberg News. Aso’s third package since taking office in September would take total spending to 25 trillion yen.

Bond yields rose to the highest since November yesterday as Chief Cabinet Secretary Takeo Kawamura said Japan will issue as much as 11 trillion yen of debt to fund the plan. Aso, facing an election this year, emphasized stimulus at a Group of 20 summit last week after chastising Germany for its reluctance to spend.

“This is an important step,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. “The economy is in free fall: wherever you put the money, it will have a positive impact.”

Aso is scheduled to hold a press conference at 5 p.m. in Tokyo today. The yield on the benchmark 10-year bond fell 3 basis points to 1.445 percent. The Nikkei 225 Stock Average climbed 0.7 percent to 8,967.53 as of 10:46 a.m.

Aso must call elections by September just as companies from Toyota Motor Corp. to Sony Corp. slash production and fire workers and the economy flirts with deflation.

World’s Largest Debt

The government’s ability to revive the economy is constrained by its debt, which is already the world’s biggest and is likely to spiral to 197 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.

Aso yesterday pledged in a speech in Tokyo to create up to 2 million jobs in the next three years and boost demand by between 40 trillion yen and 60 trillion yen in the next three years by focusing on industries such as solar batteries, electric cars and energy-saving consumer electronics.

The prime minister’s approval rating, which fell below 10 percent less than two months ago, has rebounded as he prepares sanctions against North Korea after it launched a missile over Japan this week. He has also benefited from a drop in support for Ichiro Ozawa, leader of the opposition Democratic Party of Japan, whose top aide was charged with campaign-funding violations.

“The new stimulus package reeks of an election ploy,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “It will work as a pain killer for the economy, but it’s not enough.”

Cash Handouts

Elsewhere in Asia, governments have unveiled more than $710 billion in increased spending, tax cuts and cash handouts and central banks around the region have slashed borrowing costs to kick-start consumer demand.

Aso’s latest package differs from his previous efforts, which were put together with little consultation. This time sought advice from economists, including Richard Koo of Nomura Research Institute Ltd., and executives from companies including Canon Inc. and Sharp Corp.

They proposed spending on the environment, nursing, education and agriculture -- areas they said were growing and best able to spur a sustainable recovery and create jobs.

The LDP document, obtained from a party official, earmarked 3 trillion yen to help companies, 1.9 trillion yen to support employment, 2 trillion yen for child care and education and 2.6 trillion yen for roads and airports.

The plan also includes about 1.6 trillion yen in incentives to consumers to buy energy-efficient appliances and automobiles as well as solar panels.

Gift Tax

The government will also increase the value of gifts that are tax deductible to 6.1 million yen from 1.1 million yen on condition the money be used to buy or repair housing. This measure is designed to help shift the 1,400 trillion yen in financial assets held mostly by Japan’s older generation.

The package will be the largest ever for a single year, surpassing former Prime Minister Keizo Obuchi’s 8.5 trillion yen stimulus during the Asian financial crisis in 1998.

The LDP’s plan totals 56.8 trillion yen when financial initiatives such as funds set aside to help companies get access to credit are included, according to the document.

Reports this week painted a mixed picture of the world’s second-largest economy.

Production Recovery

Japanese machinery orders unexpectedly rose for the first time in five months in February, figures showed yesterday. Merchant sentiment surged to the highest since July, the Cabinet Office said this week, indicating factory production may recover in coming months, according to Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo.

Meanwhile, exports plunged a record 50.4 percent in February from a year earlier, the Finance Ministry said, and another survey showed bankruptcies rose to a six-year high in March. The Bank of Japan said the economy is deteriorating “significantly.”

To contact the reporters on this story: Kyoko Shimodoi in Tokyo at kshimodoi@bloomberg.net; Keiko Ujikane in Tokyo at kujikane@bloomberg.net;

Last Updated: April 9, 2009 21:50 EDT