Japan's new stimulus package will include record spending of around $488 billion due to large payouts to cushion the economic damage of the COVID-19 pandemic.

The government will likely issue additional debt to fund a portion of the 55.7 trillion yen ($488 billion) in spending, which would exceed two large spending packages prepared last year. The whole package, which includes funds that would not be spent immediately, is expected to reach 78.9 trillion yen.

Officials from the government and the ruling party are finalising the details of the package, which will be announced on Friday.

"Payouts and subsidies should be delivered as soon as possible," a government source said, adding that the package's boost to economic growth will likely begin in the January-March quarter.

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Japan has lagged behind other countries in its recovery from the pandemic, necessitating policymakers to continue enormous fiscal and monetary support even while other advanced economies reduce crisis-mode policies.

Policymakers hope that the increased spending will help to support the economy, which declined more than expected in Q3 as a result of pandemic restrictions and global supply problems, which affected consumption and exports.

According to a draft, the package will mostly consist of cash payments to families with children, low-income households, and companies affected by the pandemic.

Pandemic-related stimulus totalling $3 trillion - roughly two-thirds the size of Japan's GDP - had already been implemented, putting additional pressure on the country's already strained finances.