Japanese Prime Minister Fumio Kishida vowed on Monday to compensate households for the offset of the rising cost of living with subsidies and payouts, stressing his government's resolute to bring the economy out of stagnation permanently.

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 the scars left by COVID-19.

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

"We're seeing signs of change in an economy that had focused on cutting costs for three decades," he told an extraordinary session of parliament.

"To ensure this change takes hold, we must achieve sustained, structural wage increases and promote investment through private-public cooperation," Kishida added.

"I'm putting the highest priority on the economy."

While big firms have pledged pay hikes, inflation-adjusted real wages, a barometer of consumer purchasing power, fell 2.5% on the year in August for a 17th straight month of declines, as persistent price hikes outpaced salary growth.

In its effort, the government will extend until next spring subsidies adopted to curb costs of gasoline and utilities, Kishida said, adding that details of other measures would be finalized after discussions by a tax panel of his ruling party.

Such steps would be a temporary buffer to ensure Japan makes a complete exit from deflation and will be accompanied by tax breaks for companies that boost wages and investment, Kishida said.

As rising inflation hurts the economy and his approval ratings, Kishida has unveiled plans to compile an economic stimulus package that could include a possible income tax cut.