The overall budget amount rose by 0.7 percent from this year, due to efforts to strengthen measures to deal with foreign spy ships, invading military units and terrorists as well as possible attacks by nuclear, biological or chemical weapons.

The BMD system will comprise SM-3 missiles launched from Japan's hi-tech Aegis guided missile destroyers and land-based Patriot Advanced Capability-3 (PAC-3) anti-missile systems.

The entire system will become operational by March 2006, defense agency officials said.

They declined to specify how many SM-3 missiles the agency would buy for the Aegis destroyers and how many PAC-3 systems would be installed under the new budget.

They stressed, though, that the BMD system will be strictly used for defense purposes and should not be regarded as a threat to Japan's neighbors.

"We will explain the nature of this system to neighboring nations when necessary. We will maintain transparency over the system to gain international understanding," one defense agency official said.

The planned missile defense system will focus on protecting major urban centers and other strategically significant zones because the system cannot protect all corners of the nation at the same time, news reports have said.

Defense Agency officials declined to confirm the reports nor to disclose where the missile defense equipment will be located.

The employment of the BMD symbolises a shift in Japan's defense policy, with North Korea posing a renewed threat and high-profile terrorists acts occur with increasing frequency, especially in Asia.

The Defense Agency is expected to reduce the number of Japan's tanks and some fighter jets as well as the size of Self-Defense Forces (SDF) personnel due to the reduced threat of foreign invasion, a chief concern during the Cold War.

The agency will ask for 10 billion yen to find, catch and analyse spy ships, after a Japan Coast Guard unit had a firefight nearly two years ago with a North Korean spy ship which sank and was salvaged from the East China Sea.

Another 28 billion yen will be sought for anti-guerrilla strategies, the agency said.

The agency also plans to purchase a 13,500 tonne helicopter destroyer able to launch four helicopters simultaneously.

Budget requests for those measures followed the publication earlier this month of a defense white paper, emphasising the need for effective anti-missile measures amid concerns over North Korea's nuclear program and arms proliferation generally.

Japan launched its first two spy satellites in March to boost surveillance of missiles in North Korea.

The Japanese parliament enacted a set of laws in June that give the nation its first legal framework for responding to military attack since World War II by expanding the power of the prime minister and the Self-Defense Forces in emergency situations, among other measures.

North Korea fired a suspected Taepodong ballistic missile over Japan and into the Pacific in August 1998, a move which sent shockwaves around the region.

North Korea is believed to have deployed some 100 Rodong-1 missiles with a range of 1,300 kilometres (805 miles), capable of striking any target in Japan.

WAR.WIRE