The approval on Saturday comes at a time of growing concern about North Korea and rising tension between Japan and China.
After six years of joint research, the government will launch development of the system based on the US sea-based Standard Missile 3 (SM-3) in March next year.
Shinzo Abe, chief cabinet secretary, said: “The missile defence system is purely and solely defensive in nature to protect the lives and assets of the people.
“It is appropriate to proceed with the joint development in order to secure the capability to deal with the threat of ballistic missiles.”
North Korean threat
Japan has been in a hurry to build a missile defence system with the United States since North Korea stunned the world in 1998 by firing a missile over the Japanese mainland into the Pacific.
The cabinet of Junichiro Koizumi, the Japanese prime minister, approved a three billion yen ($2.5 million) budget in the financial year for development costs as requested by the Defence Agency.
It also reserved 700 million yen for remaining work on the joint research.
Abe, a government spokesman, said the joint missile project would be carried out without infringing on Japan‘s strict control on exports of arms.
State of the art system
The SM-3 is part of an anti-missile shield which also includes the land-based surface-to-air PAC-3.
SM-3s intercept ballistic missiles when they reach their highest point outside of the atmosphere and PAC-3 missiles are used to destroy missiles that evade SM-3 interceptions.
“The system will contribute to stability in the region as it will strengthen our country’s defence capability at a time amid the proliferation of ballistic missiles”
The SM-3 interceptors will be based on destroyers equipped with the state-of-the-art Aegis air-defence system.
Fukushiro Nukaga, the state minister for defence, said last week Japan would undertake about $1 billion to $2 billion of the cost of the nine-year project. The US side is expected to chip in between $1.1 billion and $1.5 billion.
Nukaga said: “The system will contribute to stability in the region as it will strengthen our country’s defence capability at a time amid the proliferation of ballistic missiles.
“We hope to spare no effort in explaining the purpose of the policy pursued by Japan and the United States.”
The missile-defence project has been a major part of the strengthened Japan-US military alliance in recent years and is excluded from Japan‘s ban on arms exports.
In 1967, Japan banned exports of weapons to the Communist bloc, countries under United Nations sanctions and those in international conflicts.
The government tightened the ban in 1976 preventing all arms exports regardless of destination. But transfer of military technology to the United States was made an exception.