Japanese National Strategy Minister Naoto Kan said on Sunday the country's economy can avoid a double-dip recession thanks to economic recovery abroad, fiscal stimulus by the government and better market conditions.

Japan's economy is in deflation and the three-month old Democratic Party-led government fears a return to a recession next year, especially ahead of an upper house election in mid-2010, although a recent rise in Japanese exports have eased such worries.

Still, analysts expect the world's No. 2 economy to grow very slowly in the first half of next year.

Economies in Asia and the world have rebounded, and our fiscal spending ... is expected to boost demand, Kan said on a TV Asahi talk show program.

The yen is weaker and share prices have recovered to above 10,000 yen levels. I think we can avoid a double-dip recession.

Japan's government approved on Friday a record 92.3 trillion yen ($1 trillion) budget for the next fiscal year starting from April 1, achieving its self-imposed cap on new bond issues amid investor worries about a bulging public debt.

Kan also said the environment sector would be the most important focus in the government's growth strategy plan, expected to be unveiled around December 30, adding that it should be regarded as a new area of creating more demand in the economy.

Japanese business daily Nikkei reported on Sunday that the government's growth strategy plan over the next 10 years to 2020 would include a target of creating 1.4 million new jobs in the environment sector and 2.85 million new jobs in the health sector.

The Yomiuri newspaper said on Sunday the government's plan would include a target of boosting public and private investment in research and development of the science and technology sector to more than 4 percent of GDP.

(Reporting by Yoko Nishikawa; Editing by Jerry Norton)