The Cabinet endorsed the plan proposed by Prime Minister Shinzo Abe as it wrapped up work for 2014. It includes 420 billion yen ($3.5 billion) earmarked for helping stagnant regional economies.
Abe took office for a third term on Wednesday and faces strong pressure to do something to restore growth after a sales tax hike in April put Japan back in recession.
Data released Friday showed inflation eased slightly in November as household spending dropped, hindering the government's effort to get the economy out of recession and back to sustainable growth.
Japan's central bank is buying up to 80 trillion yen ($660 billion) in assets each month, mostly government bonds, to help spur inflation, but so far has not attained its target of 2 per cent price increases overall. Since wage increases have not kept pace with inflation, rising share prices and corporate profits have done little to stimulate consumer demand, apart from a rush of purchasing ahead of the April tax hike.
A large share of the proposed support for local governments will be handouts to local governments, to be used for shopping vouchers to entice people to spend more. The government will also provide funds to back loans to small and medium size businesses that have struggled with rising costs thanks to a weakening in the yen, which has boosted the prices Japanese pay for energy, food and other imported goods.
Another key aim is to ensure improved job prospects for younger Japanese in regions that are suffering from severe population decline as jobseekers crowd into the cities.
The government set targets for creating new jobs and for encouraging city dwellers to move to the countryside. One proposal calls for moving some government research institutes to the provinces, and away from Tokyo.