Mr Koizumi has "ordered us to take comprehensive measures to fight deflation", said economic and fiscal policy minister Heizo Takenaka.

The measures will include a "further monetary easing and drastic plans to resolve the [country's commercial banks'] bad loans problem as quickly as possible, he said.

The government is expected to ask the banks to write off some non-performing debts owed them by Japanese companies.

But they will not be expected to go it alone.

"It is natural for the government to inject public funds if necessary," Mr Takenaka said in a national television interview.

Ailing share prices

The economic reform package will also include steps to reinvigorate the Japanese stock market which fell to an 18-year low last week, Mr Takenaka said.