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Japanese markets and related exchange traded funds could continue to strengthen after the government announced a new multi-trillion yen stimulus package to help lift the economy out of a prolonged period of deflation.

Prime Minister Shinzo Abe's administration Thursday unveiled a ¥5.5 trillion, or $54 billion, spending package to reduce the expected economic drag from an upcoming 3 percentage point sales tax increase in April, reports Takashi Mochizuki for the Wall Street Journal.

"With this package and other economy-supporting efforts, we can make sure we remain on track to exit deflation," Abe said in the article.

The stimulus package is part of Abe's three "arrows" used to fight deflation as part of the so-called Abenomics plan.

The government estimates that the measures will translate to an ¥18.6 trillion economic impact and lift GDP by one percentage point.

"The size of our package is large enough to override a drop in spending stemming from a rush in demand ahead of the tax hike, which economists say will be around ¥2 trillion," Economy Minister Akira Amari said in October. "We won't be wrong to make it too large."

Looking ahead, the government is flirting with the idea of a corporate tax rate cut to 35.64% from 38.01% next spring to promote corporate wage growth, which has been slowing in recent years.

Greater government spending could help weaken the yen currency further. The CurrencyShares Japanese Yen Trust (NYSEARCA:FXY) has declined 15.5% year-to-date.

As the yen continues to weaken and the Japanese economy expands, investors can take a look at yen currency-hedged Japan equity ETFs, like the WisdomTree Japan Hedged Equity Fund (NYSEARCA:DXJ) and db X-trackers MSCI Japan Hedged Equity Fund (NYSEARCA:DBJP), which have gained 34.7% year-to-date and 41.6.0% year-to-date, respectively. In comparison, the iShares MSCI Japan ETF (NYSEARCA:EWJ), a non-currency hedged ETF, rose 22.5% year-to-date.

Max Chen contributed to this article.

Full disclosure: Tom Lydon's clients own DXJ.

Source: Spending Package Could Stimulate Japan ETFs

Additional disclosure: Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates.