Japan may station troops on islands near China and boost defence co-operation with the US and other allies by lifting a ban on military exports.
Both options are being considered for inclusion in a strategic defence review to be published next month - a fact that will stoke China's concerns about being contained by US and Japanese forces.
Japanese officials say China's handling of recent tensions over the disputed Diaoyu Islands has hardened positions within the cabinet of Prime Minister Naoto Kan. Those tensions flared again yesterday when a Japanese surveillance plane spotted two Chinese fisheries patrol vessels off the Diaoyus, which Japan calls the Senkakus, and anti-China protests were staged in Osaka.
The long-delayed review - the first for six years - will promote stronger and more flexible security co-operation with the US and other countries, particularly South Korea, India and Australia within the framework of Japan's pacifist constitution that limits the military to acting in self-defence.
'I believe the outline will mark a turning point in our strategic and defence planning,' said Professor Satoshi Morimoto, a well-connected former diplomat who is now director of world studies at Tokyo's Takushoku University.
'There is a strong sense now that Japan has to react to an aggressive change in China's foreign policies. What is Japan's leverage to deal with China? That is what we are talking about now.
'As China grows and becomes stronger, we can see that the main leverage we will have left is military.'
According to several government officials, policies being finalised for inclusion in the review include:
The garrisoning of troops at strategic points in Japan's southwestern islands, which stretch into the East China Sea. US marines and Japanese forces are on Okinawa, but other islands in a chain almost as long as the rest of Japan may be exposed.
There are growing fears among some Japanese policymakers that Beijing's approach to the Diaoyus suggests it may harbour ambitions to control other Japanese islands lest they be used as bases to contain China. As well as stationing a surveillance force on Yonaguni island, Japan's westernmost point, facilities for troops may also be built on four or five other islands.
Lifting a ban on military exports that dates back to 1967. Recently promoted by Foreign Minister Seiji Maehara, an unpopular figure in Beijing, and Defence Ministry officials, this would allow Japan's industrial giants to participate in developing weapons not just with the US, but potentially also with Australia, India and South Korea. While it might help the US reduce its defence spending, it would also allow the Pentagon to tap leading Japanese technology.
Japan is also expected to buy F-35 stealth fighter jets now under development in the US; if the ban were lifted soon, Japan could become involved in their development.
The expansion of Japan's submarine fleet by six to 22. While still far smaller than China's 60-strong fleet, Japan's is considered to have the best, most stealthy diesel-electric submarines in the world. More limited in range than the US nuclear-powered fleet, they would be used to monitor Chinese naval manoeuvres near Japan and provide a deterrent in waters near its outlying islands. The increase would be achieved both by building new vessels and extending the lives of existing ones.
A stronger US-Japan security alliance and broader military co-operation with Asian partners. Kan and US President Barack Obama are expected to formally seal a joint declaration on the need for stronger co-operation in Washington next spring. Some 50,000 American military personnel are based in Japan with the US 7th Fleet, which includes an aircraft carrier, and marines on Okinawa.
Regular Japan-US co-operation meetings with Australia, India and South Korea are expected, and stronger ties with Vietnam. Japan's air force is working more closely with the US Air Force, supplementing its ageing fleet of P-3 Orion early warning and command planes. US officials say Japan appears more receptive to co-operation and joint exercises.
'We don't hear the teeth-sucking caution any more ... there is finally talk about what we can do together, rather than what we can't,' one US official said. An amphibious landing exercise next month based around the retaking of an island is expected to reflect this growing co-operation. Further tightening of US-led ballistic missile defences is expected to be another plank of the review. Talks to update planning for emergencies are also due to start soon.
While Chinese diplomats in Tokyo have yet to raise formal concerns about the review, they are monitoring developments closely.
The Japanese review is the latest move in a year that has seen strategic shifts as East Asian nations tilt back towards the US amid signs China is growing rapidly more assertive. These shifts have complicated regional diplomacy which China had increasingly been dominating.
Morimoto, the retired diplomat, said higher Japanese defence spending was unlikely, but priorities would be tweaked and creative ways found to expand the country's defence capabilities.
'The Japanese people are scared of China now, but it is unlikely they will want to spend much more on defence,' he said.
Traditionally Japan has spent around 1 per cent of GDP on its military. While its armed forces are officially called the Self Defence Forces, Japan possesses one of the best equipped and trained militaries in the world.
The strategic shifts in the region were apparent last weekend in Yokohama when Kan hosted the annual summit of the Asia-Pacific Economic Co-operation forum. He held a 22-minute meeting on the sidelines with President Hu Jintao that ended with them both pledging anew to foster goodwill and enhance a 'strategic relationship of mutual benefit'. 'China and Japan being major partners in economic and trade co-operation ... should continue to deepen their mutually beneficial bilateral co-operation,' Hu was quoted as saying.
It was the pair's first meeting since the Japanese coastguard arrested a Chinese fishing boat captain off the Diaoyus in September.
Kan's meetings with Obama were far warmer and more comprehensive, however.
While his short-lived predecessor, Yukio Hatoyama, at one point pledged to balance the US in the region, Kan spoke of the growing importance of the Japan-US alliance to peace in East Asia.
Both men belong to the Democratic Party of Japan, a broad centre-left group of pro-US, pro-China and pacifist factions. Insiders say the recent tensions over the Diaoyus have given the party a dose of realism.