Japanese Prime Minister Junichiro Koizumi is expected to unveil Tokyo's decision when he meets James Baker - the US special envoy on Iraqi debts - in the Japanese capital on Monday, Japanese business daily Nihon Keizai Shimbun (Nikkei) reported on Sunday.
Koizumi will not tell Baker the extent of the reduction until he makes the final decision sometime next year, following talks with other members of the Paris Club, reported the newspaper.
Baker is due to arrive in Tokyo on Sunday on a two-day visit. During his European tour earlier this month, Baker won pledges from France, Germany, Italy, Britain and Russia to help substantially reduce Iraq's $120 billion in foreign debt.
Japan is the largest creditor country to Iraq among 19 members of the Paris Club.
It had been reluctant to forgive the debt on the grounds that the liabilities could be eventually repaid with Iraqi oil revenue. Instead of writing off the debt, Japan wanted to reschedule it.
Another reason for Tokyo to be reluctant to write off the debt is that it has already pledged substantial financial contributions to Iraqi reconstruction efforts.
Japan pledged to extend $5 billion in aid to help rebuild Baghdad in the four-year period from 2004.