Japan PM Ishiba tells cabinet to compile stimulus package

By Makiko Yamazaki and Tim Kelly

TOKYO (Reuters) -Japanese Prime Minister Shigeru Ishiba formally instructed his ministers on Friday to compile a fresh economic package to cushion the blow to households from rising living costs, as the new government makes its top priority an exit from deflation.

The step comes as Ishiba, previously seen as a proponent of fiscal austerity, now stresses ahead of a general election that his focus is to get the economy to fully shake off the deflation that has weighed it down for the last three decades.

"We would need to support people suffering from rising costs right now until a positive growth cycle with wage increases outpacing inflation and driving capital expenditures is established," Ishiba told parliament in a policy speech.

Earlier on Thursday Ishiba told his cabinet a supplementary budget would be compiled to fund the package after lower house elections set for Oct. 27.

The fresh package will include payouts to low-income households and subsidies to local governments, he said in the policy speech.

Among other economic policies, Ishiba also pledged to make efforts to boost the minimum wage to 1,500 yen ($10.24) an hour this decade, versus 1,055 yen now.

Economic conditions have improved and wages have finally begun to grow after three "lost" decades that focused on cost cuts, he said. "But we're still half way through to achieve an economy where people can feel safe to spend."

On the diplomacy front, Ishiba vowed to keep building ties with like-minded nations, including deeper security co-operation with neighbouring South Korea pursued by his predecessor.

He also said he would work with China where possible while confronting it on issues of disagreement.

A poll conducted by Kyodo News showed his new cabinet had an approval rating of 50.7% soon after its inauguration this week.

When Ishiba's predecessor, Fumio Kishida, launched his cabinet three years ago, the approval rate was 55.7%.

But it plunged to 26.1% in August, amid a slush fund scandal that engulfed the ruling Liberal Democratic Party and forced Kishida to step down.

($1=146.4400 yen)

(Reporting by Makiko Yamazaki, Tim Kelly, Kentaro Sugiyama, Kaori Kaneko and Rocky SwiftEditing by Shri Navaratnam and Clarence Fernandez)