Japan may allow exports of defence equipment to international organisations such as those involved in U.N. peacekeeping operations on condition they do not take sides in conflicts, Kyodo News reported on Tuesday.
Under Prime Minister Shinzo Abe, Japan is reviewing various aspects of defence including its self-imposed ban on weapons exports.
But resentment of Japan's wartime aggression runs deep in both China and South Korea and any decision by Japan to become more active militarily is likely to cause tension.
Japan in 1967 drew up ''three principles'' on arms exports, banning sales to countries with communist governments, those involved in international conflicts or those subject to U.N. sanctions.
The rules eventually became almost a blanket ban on arms exports and on the development and production of weapons with countries other than the United States, making it difficult for Japanese defence contractors to drive down costs and keep up with arms technology.
The government is also considering easing rules on the transfer of its defence equipment to third parties, Kyodo said.
Under current rules, countries buying defence equipment from Japan need to get Japan's approval before they can transfer it to a third party.
Defence contractors that could benefit from any loosening of the export ban include Mitsubishi Heavy Industries Ltd and Kawasaki Heavy Industries Ltd.
Abe, who took office at the end of 2012, aims to lift constraints placed by Japan's post-war pacifist constitution on its military.
Article 9 of the constitution, drafted by occupying U.S. forces after the country's defeat in World War Two, renounces the right to wage war and, if taken literally, rules out the very notion of a standing army.