Japan Thursday announced a $113 billion stimulus as part of a package of measures aimed at cushioning the economic blow from inflation, as Prime Minister Fumio Kishida tries to rescue his premiership with his poll ratings at a record low.

Voters in the world's third-largest economy have been reeling from rising prices since Russia launched its invasion of Ukraine last year, pushing up energy costs and putting pressure on the government.

"We are seeing that the tide is turning from the vicious cycle of deflation – symbolized by low prices, low wages and low growth," Kishida told a meeting where he revealed the size of the package would be around 17 trillion yen ($113.2 billion).

"For the first time in 30 years, we are facing a great opportunity to move to a new economic stage," he added.

"On the other hand, in the current situation where the rise in wages is not catching up with the rise in prices, it is necessary to support people's disposable income temporarily to avoid moving back to deflation," he said.

To fund part of the spending, the government will compile a supplementary budget for the current fiscal year of 13.1 trillion yen, Kishida said.

Including spending by local governments and state-backed loans, the size of the package will total 21.8 trillion yen.

"Japan's economy is seeing a big opportunity open up to shift to a new stage for the first time in three decades," as it exits from a deflationary spiral, Kishida said.

"That's why we need to help companies boost profitability and earn revenues to boost wages," he added.

Billions already injected

The government was expected to give more details later, but reports said the program would be worth 37.4 trillion yen when including private sector spending.

The plan involves income and residential tax reductions of 40,000 yen per person and 70,000 yen cash handouts to low-income households, according to public broadcaster NHK and other local media.

Fuel subsidies will also be extended and there will be funds to promote investments in high-tech areas, including the chip and space industries.

The package will likely add to Japan's debt mountain, which stood at 261% of gross domestic product (GDP) in 2022, one of the world's highest.

The government has already injected hundreds of billions of dollars into the economy over the past three years since the COVID-19 pandemic.

"Everyday products have become more expensive, so I have no choice but to look for cheaper items. I've cut my purchases in half," Masaharu Kashima, 74, told Agence France-Presse (AFP) in Tokyo.

"I don't think (the stimulus) is going to change much ... They also already gave us 100,000 yen (during COVID-19), but it didn't change anything."

Inflation, fuelled by rising costs of raw materials, has kept above the central bank's target of 2% for more than a year, weighing on consumption and clouding the outlook for an economy making a delayed recovery from scars left by COVID-19.

Unlike other major central banks, the Bank of Japan (BOJ) refused to tighten monetary policy and instead continues to keep interest rates below zero and bond yields ultra-low in a bid to boost economic growth.

That has come even as inflation continues to rise – the core consumer price index is at a three-decade high – with officials insisting the increase is temporary despite ramping up its forecasts for this year and next.

But its stance has added pressure on the yen, one of the world's worst-performing major currencies in 2023.

Poll ratings plunge

The rising cost of living is partly blamed for pushing down Kishida's approval ratings, piling pressure on the prime minister to ease the pain on households.

Poll ratings for the premier are at their lowest levels since he took office two years ago. Kishida, 66, can govern until 2025, but speculation is that he might call a snap election ahead of a likely tough internal leadership vote in his ruling Democratic Party (LDP) next year.

With increases in wages proving too slow to offset rising prices, Kishida had said the government would cushion the blow by returning to households some of the expected increase in tax revenues generated by solid economic growth.

Analysts, however, doubt whether the roughly 5 trillion yen to be spent on tax cuts and payouts would do much to boost consumption and Japan's economic growth.

Takahide Kiuchi, a former Bank of Japan board member who is currently an economist at Nomura Research Institute, expects the measures to lift gross domestic product (GDP) by just 0.19% for the year.

"It's a policy that isn't very cost-effective," he said. "With Japan's output gap having turned positive in April-June, the economy doesn't need a stimulus package in the first place."

Hideo Kumano, the chief economist of Dai-ichi Life Research Institute, was also "skeptical" whether the package will help either the economy or the prime minister.

Kishida has oscillated between stressing fiscal discipline and wanting to boost spending, Kumano told AFP.

"Those who had opposed any tax hike to finance government policy hadn't supported Kishida. Now, those who had opposed distributing money widely will leave him," the analyst said.

Japan's economy expanded an annualized 4.8% in the second quarter, the biggest increase in over two years, as an end to COVID-19 pandemic curbs boosted consumption.

But falling real wages in July adds doubts over central bank projections that domestic demand can keep the country on a steady recovery path.