Japan's defence budget for the next fiscal year is likely to top 5 trillion yen ($40 billion) for the first time, government sources said, as the military prepares for an expanded role under new security legislation.
The budget for the 12 months from April 2016 will include funding for a controversial US military base to replace the US Marine Corps's Futenma air base on the southern island of Okinawa, host to the bulk of US military forces in Japan.
The 2016/17 budget is expected to be finalised by the cabinet on Dec. 24.
The defence ministry in August requested a budget of 5.09 trillion which would include spending to fortify a far-flung island chain in the East China Sea, close to territory also claimed by Beijing.
The Nikkei business daily said on Friday that the figure would be shaved to 5.04 trillion yen, up from 4.98 trillion this fiscal year and the fourth consecutive rise since Prime Minister Shinto Abe took office in December 2012 and ended the decline in defence spending.
A weakened yen, however, means extra spending would not necessarily boost Tokyo's ability to buy high-tech weaponry, much of which comes from the United States.
Parliament in September enacted hotly contested legislation that would allow Japan's military to fight overseas for the first time since its defeat in World War Two in defence of a friendly country that came under attack.
Faced with China's increasing military assertiveness, Japan has been shifting from defending its northern regions from a diminished Russian threat to deploying a lighter, more mobile force in the East China Sea and Western Pacific.
Japan administers a chain of uninhabited islands in the East China Sea called the Senkaku by Tokyo and the Diaoyu by Beijing, which also claims ownership of the islets.
The 2016/27 budget will include additional funding for the planned move of Futenma air base to a less crowded part of Okinawa, the Nikkei said.
Japan's central government is locked in a court battle with Okinawa Governor Takeshi Onaga over the plan after Onaga revoked a permit for landfill work needed for the new base.
The United States and Japan agreed in 1996 to close Futenma and move its functions elsewhere on the island, but relocation stalled due to opposition from Okinawa residents worried about noise, pollution and crime and resentful of what they see as an unfair burden for the allies' security pact.