The Japanese government has increased a stimulus plan aimed at re-launching the economy by 23 trillion yen ($US255 billion).
Prime minister Taro Aso said more than half the amount will be used to bring stability to the financial markets.
A 27 trillion yen package was previously announced in October, in which credit was expanded for small businesses and cash payouts offered to families to encourage spending.
On Friday, the Japanese yen surged to its highest level against the US dollar in 13 years, sending stocks plunging and hitting the country's exporters.
Mr Aso said the economic situation is "worse than expected" and Japan would "try to be the first to get out of the recession".
The new package also includes tax breaks and public financing projects worth 10 trillion yen.
Mr Aso said urgent measures were needed to fight unemployment.
Japan's economy shrank by an annualised rate of 1.8% in the third quarter.
