Japanese Prime Minister Shinzo Abe will hike the nation's sales tax, Jiji Press news agency said Tuesday, in a move seen as crucial to chopping a massive national debt.

Abe told a meeting of government and ruling party policymakers that the increase was aimed at "maintaining the nation's trust and handing over a sustainable social security system to the next generation", Jiji reported.

The 59-year-old premier added that he would also unveil an economic stimulus package to "ease the impact" of a tax rise that critics fear will derail Japan's budding recovery.

The move marks a big political gamble for Abe -- previous hikes have proved career-ending for his predecessors.

Tuesday's confirmation ends months of uncertainty about whether the Japanese leader would press on with raising sales taxes to 8.0 percent from 5.0 percent, still far lower than in many wealthy countries.

Economists estimate the impact on households at some 8.0 trillion yen ($81 billion), dealing a blow to consumer demand just as the world's third-largest economy is picking up.

Details of the package are to come later Tuesday. Abe is expected to unveil a one-time $50-billion package with benefits for low-income earners and corporate incentives to boost investment and wages.

He may also speed up the timeline for getting rid of a special corporate tax ushered in after the 2011 quake-tsunami disaster.

Abe's final decision came just hours after the Bank of Japan (BoJ) published its quarterly Tankan business confidence survey which surged to a more than five-year high.

A strong showing in the Tankan was widely viewed as the tipping point for Abe to implement a tax rise passed by the administration he booted out of office, although Japan's recovery is far from complete.

"Companies are still cautious about investing more and they're concerned about the negative impact of the tax rise," said Hideki Matsumura, senior economist at Tokyo-based Japan Research Institute.

Since sweeping December elections on a ticket to kickstart the long-laggard economy, the prime minister has launched an unprecedented policy blitz -- a blend of government stimulus and monetary easing dubbed Abenomics -- which appears to be taking hold as the economy expands.

Japan's is on track for a strong annualised growth rate of 3.8 percent, leading G7 nations, while the stock market is up about 40 percent from the start of the year.

But Abe's decision on hiking the tax levy threatens not only to sink his growth plans; it could also dim his popularity with voters.

"This is Abe's biggest political decision since he took office," Tomoaki Iwai, a politics professor at Tokyo's Nihon University, told AFP.

"Japan is in the middle of an epic experiment and his decision is a crucial test of Abenomics."

After years of pumping money into the laggard economy -- combined with snow-balling welfare costs in a rapidly-ageing society -- Japan now has the heaviest debt burden among rich nations, standing at more than twice the size of the economy.

And separate data on Tuesday showed Japan's battle to turn around years lacklustre growth has yet to be won.

Household spending remains stubbornly weak, slipping 1.6 percent in August from a year earlier.

Getting consumers to spend more -- and employers to raise wages -- is a key part of Abe's bid to reverse a 20-year funk in Japan's deflation-plagued economy.

Following through on deeper reforms, including shaking up protected industries and a rigid labour market, is also seen as key to Abe's success or failure.

"This is what will determine whether Japan's reflation drive succeeds," HSBC said in a note.

Despite securing his power base in July upper house polls -- putting off elections for at least three years -- historical precedents are not good for premiers who force consumers to shell out more at the cash register.

Two of Abe's predecessors were forced to resign shortly after raising the tax in 1989 and 1997.