TOKYO (Kyodo) -- Japan's minority government accepted on Wednesday an opposition party's demand to raise the tax-free income threshold, paving the way for compilation of an inflation relief package.

Prime Minister Shigeru Ishiba's ruling Liberal Democratic Party and its junior coalition partner Komeito are set to finalize measures to mitigate the negative impact of rising prices before gaining Cabinet approval, possibly on Friday.

To win the Democratic Party for the People's support, the ruling bloc agreed to raise the tax-free income limit from the current 1.03 million yen ($6,600) and stated it would consider cutting gasoline taxes.

Boosting the tax-free threshold was the signature pledge of the DPP, which saw its seats and influence rise significantly in last month's general election.

The three parties also confirmed that they will continue discussions to determine the extent of the increase in the ceiling and how to offset potential reductions in tax revenue.

Based on the agreement, the three parties plan to join hands to pass a draft supplementary budget for the current fiscal year through March to finance the economic measures as early as possible.

DPP policy chief Makoto Hamaguchi told reporters the party is "unlikely to oppose" the spending plan "on the condition of the steady implementation of the economic measures."

After the ruling coalition lost majority control of the House of Representatives in the general election late last month, it needs to win the support of opposition parties on a bill-by-bill basis.

Last week, the ruling bloc started negotiations over the stimulus package with the DPP, which quadrupled its seats to 28 in the election with younger voters supporting its pledge to boost disposable incomes.

The DPP pledged to raise the income tax ceiling to 1.78 million yen from 1.03 million yen, a threshold considered discouraging to part-time workers, especially housewives and students, who are not incentivized to work longer hours.

DPP leader Yuichiro Tamaki has said the threshold should be lifted to 1.78 million yen as Japan's minimum wage has increased by 1.73 times since 1995, when the 1.03 million cap was introduced.

While the government is reluctant to raise the cap to that level, saying it would reduce annual tax revenues by an estimated 7 trillion yen to 8 trillion yen, Tamaki, a former Finance Ministry bureaucrat, argues increasing people's disposable income will boost consumption, leading to higher corporate earnings and tax revenues.

Ishiba's administration is preparing a stimulus package that includes subsidies to lower utility bills and cash handouts to low-income households, according to government sources.