The $154bn plan unveiled by Taro Aso, the prime minister, includes initiatives to increase lending, support small firms and promote green technologies.
Aso also announced plans to create millions of jobs to boost economic growth.
"With bold actions from the government and the private-sector, Japan will be able to increase the value of real gross domestic product by 120 trillion yen ($1.2 trillion) and create four million jobs by 2020," Aso told a news conference in Tokyo on Thursday.
Japan's economy recorded its worst performance in almost 35 years in the last quarter of 2008, contracting at a rate of 12.1 per cent a year.
Thursday's stimulus was the country's third, with $118bn of fiscal spending already announced since October.
But while share markets liked the latest stimulus plan, the prospect of record sales of government debt to pay for it caused government bonds to sink after the ruling Liberal Democratic party said the package should be paid for by issuing up to $110bn in new bonds.
"The contents look like temporary measures to front-load demand, but they do not pay attention to increasing productivity on the supply side," Masamichi Adachi, a senior economist at JPMorgan, told the Reuters news agency.
Friday's jump in the Japanese share market also followed a rally on Wall Street on Thursday triggered largely by better-than-expected preliminary results from Wells Fargo.
The bank's statement that it expected to report a record quarterly profit strengthened hopes that the deterioration in the financial sector was abating and drove the Dow Jones industrial average to gain 3.1 per cent and breach the 8,000 point mark to hit its highest close in two months.