Japan cabinet approves $5.3 billion economic stimulus measures

TOKYO, Oct 26 (Reuters) - Japan's cabinet approved a 422.6 billion yen ($5.3 billion) economic stimulus package of subsidies and tax grants on Friday that will tap budget reserves to avoid selling new debt.

The package is dwarfed by the 90.3 trillion yen national budget for the fiscal year that started from April, showing the government has limited resources to increase spending to bolster a flagging economy.

The stimulus measures will likely be overshadowed by the fact that Prime Minister Yoshihiko Noda's government has yet to secure opposition votes to pass a bill that is crucial to funding this year's budget.

The government will spend 264.3 billion yen on subsidies to encourage capital expenditure in areas damaged by last year's nuclear disaster and earthquake, as well as tax grants to help rural areas combat flooding.

The measures include 105.1 billion yen in subsidies to promote the use of renewable energy in the household sector, to support clinical trials for stem cell research and to improve irrigation for small farms, a statement said.

The government will also spend up to 30 billion yen to improve training and on-the-job education for part-time employees.

Falling exports, slowing growth in China, and the lingering impact of Europe's debt crisis has raised concern that Japan could fall into recession, but large public debt makes it difficult for Japan to use fiscal policy to pump-prime the economy.

The limited scope of the measures is partly a reflection of a political stalemate that has slowed policymaking since last month as the opposition senses it an oust the government if it forces Noda to call an election.

Legislation needed to sell bonds for this fiscal year's budget is in limbo due to political gridlock. Without the bill being passed, the government could run out of money by the end of November.

Japan has already been hit by a string of credit downgrades because of concerns that it was not doing enough to curb its debt burden, the world's largest at twice the value of its annual economic output.