The Defence Agency has decided to seek US permission for a Japanese contractor to build the Patriot Advanced Capability-3 (PAC-3) interceptor missile developed by US companies, the Nihon Keizai newspaper reported.

Mitsubishi Heavy Industries Ltd., the top Japanese defence contractor, is the prime candidate for the licensed production, the leading business daily said in its evening edition.

Mitsubishi Heavy is currently building the PAC-2, the anti-missile defence system preceding the PAC-3, for deployment at home under a licensing agreement with US companies.

The PAC-3, developed by Lockheed Martin Missiles and subcontractors, is designed to intercept missiles closer to the earth's surface during their descent prior to impact. Some US troops have already fielded the system.

"Nothing has been decided about the introduction of the PAC-3 and it is still under study as part of the missile defence programme," a spokesman for the Defence Agency said.

He added, however, that Mitsubishi Heavy may have an edge over domestic competitors as a contractor if the PAC-3 is to be produced in Japan.

"Since the Patriot-2 is being made by Mitsubishi, I personally think that it would be difficult for other makers to get (the contract)," he said.

A Mitsubishi Heavy spokesman, meanwhile, said the company had not received contact from the agency about any PAC-3 deal.

"The report is very speculative," he said.

But the spokesman added: "We would be grateful if such a licence comes to us as we take pride in our missile technologies."

The PAC-3 is claimed to be capable of countering theatre ballistic missiles armed with weapons of mass destruction, cruise missiles and aircraft in the presence of electronic countermeasures and all weather conditions.

The report said the Japanese agency wants to build a missile interception system using the PAC-3 as soon as possible, considering the range of North Korea's Rodong ballistic missile covers almost the entire area of Japan.

The PAC-3 is expected to become one of the key items in the agency's shopping list in the year to March 2005, along with the US-developed Standard Missile-3 (SM-3) to be deployed aboard Aegis-equipped warships, it added.

Japan envisages a two-stage anti-missile system, the report said.

SM-3s intercept North Korean ballistic missiles when they reach their highest point and then PAC-3 missiles are used to finish off the missiles that have escaped SM-3 attacks.

The agency intends to deploy the anti-missile system in the year to March 2007 with its total cost, including telecommunications equipment as well as PAC-3 and SM-3 missiles, estimated at some 500 billion yen (4.2 billion dollars).

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