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.
This is primarily attributed to the global economic downturn, which has caused Japanese exports to halve over the past year as demand for its cars and high-tech goods decline.
Major manufacturers have cut back on production and have axed tens of thousands of jobs since the crisis began.
Unemployment in Japan hit a three-year high of 4.4 per cent in February.
The new stimulus package is expected to include measures to assist laid-off workers, help companies secure access to credit, improve healthcare and to encourage greater use of solar energy technologies.
The latest cash injection follows a call by the International Monetary Fund (IMF) for nations to lift stimulus spending to at least two per cent of GDP.
It also comes as business confidence in Japan fell to an all-time low, according to the country's central bank.
Results of the Bank of Japan's tankan survey of more than 10,000 large manufacturers released last week said confidence declined to minus 58 in the three months to March.
That was far worse than the minus 24 in the previous quarter and below the previous record of minus 57 in 1975.
The quarterly tankan survey is an index that measures the percentage of firms that think business conditions are good minus those that think they are unfavourable.