Japan's Liberal Democratic Party and the Japan Innovation Party have broadly agreed to form a coalition government, setting the stage for the country's first female prime minister, Kyodo news agency reported on Sunday.

Sanae Takaichi, leader of the conservative LDP, and Hirofumi Yoshimura, head of the smaller right-leaning group, known as Ishin, are set to sign an agreement on their alliance on Monday, Kyodo said.

Calls to the LDP and Ishin headquarters to seek comment went unanswered outside business hours.

Ishin's co-head, Fumitake Fujita, raised expectations for a deal on Friday, saying the two parties had made "big progress" in coalition talks.

Ishin lawmakers will vote for Takaichi in an election to choose the prime minister in parliament on Tuesday, but the party does not plan to send ministers to Takaichi's cabinet initially, the news agency said.

Takaichi's path to succeed Prime Minister Shigeru Ishiba had seemed all but certain after she won her party's presidency early this month. But then the long-ruling LDP's junior partner, Komeito, quit their 26-year coalition, setting off a flurry of negotiations with rival parties to select the next premier.

In an effort to get Ishin on board, the LDP offered to keep working towards banning donations from companies and other organisations and exempting food items from Japan's sales tax, Kyodo said.

Ishin has proposed eliminating the tax on food items for two years. (Reuters)