TOKYO (Kyodo) -- The Japanese government is set Friday to finalize a massive economic package worth around 21.3 trillion yen ($135 billion) to tackle rising living costs, as Prime Minister Sanae Takaichi places priority on fiscal spending to spur growth.

The first stimulus package under Takaichi, who became prime minister last month, will likely reach 42.8 trillion yen when combined with spending by local governments and the private sector, according to a source close to the matter, much higher than the 39 trillion yen of measures in the previous year.

A series of measures in the package, expected to be approved by the Cabinet later in the day, are intended to support the world's fourth-largest economy amid concern that higher U.S. tariffs will hurt both businesses and ordinary households.

In addition to short-term inflation relief measures, the government also plans to boost investment in areas such as shipbuilding and artificial intelligence, seen as vital for crisis management and national security. Such strategic investments, Takaichi hopes, will also lift the country's long-term economic growth.

To fund the economic package, the government plans to craft a 17.7 trillion yen supplementary budget for the current fiscal year ending March, aiming to enact it before the ongoing Diet session ends in December.

It would exceed the 13.9 trillion yen supplementary budget for the previous fiscal year, reflecting Takaichi's push for aggressive fiscal spending.

The prospect of a large-scale stimulus package has prompted a sell-off of the yen and Japanese government bonds in recent days, fueled by market concerns about the country's deteriorating fiscal health, already the worst among advanced economies with debt over twice the size of the economy.

Specific items include cash handouts of 20,000 yen per child, which would require the government to allocate around 400 billion yen, along with rice vouchers worth 3,000 yen per person to be distributed by local governments, the source said.

The government will also incorporate into the package the effects of scrapping a provisional gasoline tax and raising the tax-free income threshold as part of efforts to reduce the financial burden on households, according to the source.

Japan's supplementary budgets have exceeded 10 trillion yen in recent years, far above the several trillion yen typically seen before the COVID-19 pandemic.

But some economists question the efficacy of such packages, warning that stimulating demand in an inflationary phase could push prices higher and squeeze households.

As households face elevated food prices, the central government will set aside 2 trillion yen for subsidies to local governments to enable them to launch their own measures, including rice vouchers.

The package will also allocate 500 billion yen in subsidies for electricity and gas bills for the first three months of next year, reducing energy costs borne by households by roughly 7,000 yen on average for the period.