TOKYO (AP) -- Japan's economy is likely to shrink 3.3 percent this fiscal year, its worst contraction since World War II, the Cabinet announced Monday as it submitted a massive supplementary budget to finance a new stimulus package.
"Exports and production are falling drastically, while employment conditions are rapidly worsening. Financing for businesses is also severe, and it is correct to say that Japan is in the middle of a financial crisis," Finance Minister Kaoru Yosano said in an address to the parliament.
Yosano asked lawmakers to quickly pass the extra budget, which calls for a record 15 trillion yen ($155 billion) in government spending to finance a new stimulus package. The package is equivalent to about 3 percent of Japan's gross domestic product.
His remarks came after the Cabinet downgraded its forecast for Japan's GDP to a contraction of 3.3 percent for the current fiscal year through March 2010. It had previously predicted GDP would be flat for the period.
It also said the world's second-largest economy is likely to have shrunk 3.1 percent in the fiscal year that ended last month, worse than the previous estimate of a 0.8 percent contraction.
With the latest estimates, Tokyo now expects the two-year period to be the worst for the economy in the country's postwar history. The largest previous GDP contraction was 1.5 percent in 1998.
In a statement released early Monday, the Cabinet said the stagnant global economy was hurting Japan's mainstay exports. But it said its economic measures would prevent Japan from getting caught in a downward spiral.
The Finance Ministry last week said Japan recorded its first annual trade deficit in 28 years in the just-ended fiscal year.
Japan has heavily relied on foreign sales of its cars and gadgets to drive economic growth, and is reeling from the collapse in global demand sparked last year by the U.S. financial crisis. Its economy shrank an alarming annual 12.1 percent in the October-December quarter, marking the steepest contraction since the oil shock of 1974.
The administration says the newest stimulus package will help protect the economy from slipping further while laying the foundation for future growth. It also provides support for the unemployed and small businesses.
The spending will also add to Japan's expanding public debt. Since Prime Minister Taro Aso took office in September, lawmakers have already approved two stimulus packages worth 12 trillion yen in fiscal spending.