Prime Minister Fumio Kishida said Monday that his government's new economic package will seek to navigate the economy through a cost-of-living crisis to achieve long-term growth as part of his plans to redistribute wealth in Japan with pay hikes and other similar measures.

The package, which will also seek to address demographic challenges and rev up the chip sector, will be compiled in October, and a supplementary budget will be formed to fund it. Kishida said he will formally instruct his ministers to step up work for drawing up the measures on Tuesday.

Prime Minister Fumio Kishida outlines his government's new economic package in Tokyo on Sept. 25, 2023. (Kyodo)

The package has five pillars -- easing the pain of inflation on households, spurring more wage growth, increasing investment, addressing challenges posed by the nation's declining population and securing the safety and security of the Japanese people.

"People are struggling to cope with rising prices. Private consumption and capital expenditure lack strength and remain unstable," Kishida told reporters as he announced the outline.

"We will implement economic measures to properly distribute the fruits of growth to the Japanese people," Kishida said.

The total amount to be spent on the package has not yet been worked out, but the government faces the difficult task of signaling a break from a period of "crisis-mode" spending measures to cope with the COVID-19 pandemic and Russia's war on Ukraine.

While inflation has maintained a much slower pace in Japan compared to the United States and Europe, the resource-poor country has also seen a rise due largely to higher prices of imported energy and raw materials.

The government will retain subsidies put in place to lower fuel costs as rising energy prices, inflated by a weaker yen, have dented household consumption.

The package will also seek to support reskilling workers and encourage small and midsize companies to raise pay for their employees, with Kishida having set a goal of promoting more wealth redistribution, describing his approach as "a new form of capitalism."

After the COVID-19 pandemic laid bare the vulnerabilities of becoming overly reliant on China for critical components like semiconductors, Japan is seeking to revamp its once-competitive chip industry and protect its economic security.

Under the new measures, the government will include steps for encouraging investment in strategic sectors, Kishida said.

Hiroshige Seko, secretary general for the ruling Liberal Democratic Party in the House of Councillors, has been calling for a package of between 15 trillion ($101 billion) and 20 trillion yen.

He has been a supporter of fiscal stimulus and bold monetary easing under the "Abenomics" program led by former premier Shinzo Abe, which sought to boost the economy.

The Bank of Japan has stuck to its ultralow rate policy, diverging from global peers like the U.S. Federal Reserve and the European Central Bank, which have been raising interest rates to rein in soaring inflation.

The yen's recent depreciation reflects the policy divergence, leading Japan to see cost-push inflation for over a year. BOJ Governor Kazuo Ueda reiterated on Monday that monetary easing is necessary because Japan is at a "critical" juncture in achieving a virtuous cycle of pay and price hikes.

Asked about the need to stem the yen's fall, Kishida said Monday excessive volatility is undesirable, and currency moves should reflect economic fundamentals.

"We will continue to closely monitor developments in the currency market with a heightened sense of urgency," he said, amid market caution about another round of yen-buying, dollar-selling intervention by Japanese authorities.

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