By Andrew Monahan Of DOW JONES NEWSWIRES TOKYO (Dow Jones)--Worried by a sharp slowdown in the economy and a strong yen, Japan's government is considering another round of stimulus to stoke growth as measures enacted during the recent financial crisis soon begin to expire. But policymakers face a daunting challenge balancing any new spending with their pledges to curb the country's debt, which is already approaching twice the size of Japan's gross domestic product. Economic growth slumped in April-June to an annualized pace of 0.4% from 4.4% in the previous quarter, and tax revenues will likely take a hit as a result. The government is unlikely to add to its mountain of debt to finance any new steps, which will likely be limited in scope and long-term impact, analysts say. The government is now seriously considering where to spend limited tax revenue in order to promote "economic expansion," Finance Minister Yoshihiko Noda said Thursday. "If we had lots of tax (revenue) or lots coming in, we could do anything, but that is not the case," he said. Noda said he thinks it's time to carefully consider how to create conditions for "young people to have dreams and get jobs." The remarks come after Prime Minister Naoto Kan earlier in the week called the jobs market for young people "very bleak." The comments suggest any package would include employment support measures. The Labor Ministry aims to expand and extend job support programs, including one targeting new graduates, the business daily Nikkei reported Thursday. Emergency measures to boost consumer spending and support small businesses hurt by the strong yen could also be included, according to local media reports. Prime Minister Kan said Wednesday he had directed Noda, trade minister Masayuki Naoshima and economy minister Satoshi Arai to assess economic conditions and brief him on what they find. "I will soon hear (their reports), and after listening closely to what they say I will make a decision" on any additional stimulus, Kan said. The Policy Research Committee of Kan's ruling Democratic Party of Japan aims to finish drawing up its proposals for extra stimulus next week and to submit them to the government by the end of the month, Satoshi Nishiyama, a committee official, told Dow Jones Newswires. The proposals would include suggestions for taming the strong yen, Nishiyama said. The dollar fell last week to a 15-year low against the yen at Y84.72. As of Thursday evening in Tokyo, the U.S. currency was at Y85.75. The yen's strength clouds the outlook for Japan's export-driven economy. A strong yen makes Japanese products less competitive overseas and diminishes overseas revenue sent back to Japan. The currency's gains prompted Noda last week to threaten "appropriate action." In the past, officials have used such language to refer obliquely to the possibility of foreign exchange market intervention. But traders say the government may instead try to extract additional monetary easing from the Bank of Japan in order to push down the yen. Prime Minister Kan is to meet Bank of Japan Gov. Masaaki Shirakawa Monday to discuss how to deal with the yen, local media say. "There's no question the strong yen is extremely painful for (Japanese) exporters," Japanese Senior Vice Minister of Finance Naoki Minezaki told reporters Thursday evening. Any additional stimulus spending would likely be funded with Y1.7 trillion in "contingency funds" from the budgets from the previous and current fiscal years, said J.P. Morgan economist Masaaki Kanno. "Such funds would usually be used in case of emergencies like earthquakes or typhoons, but maybe the government regards the currency strengthening as a kind of earthquake," Kanno said. But additional spending "would have little impact on Japanese people's expectations for the economy nor would it increase foreigners' appetite for investing in Japan" despite any action being aimed in part to support consumer sentiment and boost the country's sagging share prices, Kanno said. Given Japan's debt problem, such spending "is not sustainable," he said. Noda earlier in the day provided a vivid image of the scale of that debt. The estimated Y862 trillion in outstanding debt of the central and local governments would be more than 2,500 times the height of Mount Fuji, Japan's highest mountain, if stacked up in Y10,000 notes, he said. -By Andrew Monahan, Dow Jones Newswires; 81-3-6269-2783; andrew.monahan@dowjones.com

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