TOKYO (Reuters) - Japan plans to get its biggest state-funded research and development agency involved in military research for the first time in a bid to lure more Japanese companies into the development of cutting-edge weapons technology, two sources said.
Prime Minister Shinzo Abe wants the New Energy and Industrial Technology Development Organization (NEDO) to work with firms to harness technologies that have both military and commercial uses to spur industrial innovation, said the sources, who are helping devise the policy.
The idea would be for NEDO to identify promising technologies and then partner with companies on the research to see if it appealed to customers both at home and abroad, they added. NEDO's role would end at the research stage.
Using tax-funded R&D to push into so-called dual-use projects will add momentum to Abe's more muscular security agenda, which included a decision last year to end a decades-old ban on arms exports. It will also tie defense technology to Abe's wider economic goal of delivering a longer term renaissance for Japan after years of stagnation.
Japanese corporations have shied away from military research partly because it made little commercial sense when defense contractors were restricted to the local market for sales.
But experts say they also worry about being labeled as merchants of death at home, where Japan's role in World War Two remains a sensitive issue.
The sources said the plan would accompany a reorganization already underway at NEDO to make it resemble the Pentagon's Defense Advanced Research Projects Agency (DARPA), which funds a wide range of research with military applications.
"There may be technology lying around that nobody paid attention to before," said one of the sources, who declined to be identified because he was not authorized to speak to the media.
The worry for Japan was that such technology would go unused, or worse, fall into the hands of foreign companies through acquisitions, mergers or other business deals, the source added.
He gave no timeframe for when the policy would be put in place at NEDO, which has an annual budget of around $1.5 billion and a staff of 900.
While a NEDO spokesman said the agency had no intention of getting directly or indirectly involved in military research, an official at the Ministry of Economy Trade and Industry, which oversees NEDO, said a dual-use role would probably be possible without needing to tweak the agency's charter.
"Doing dual-use programs at NEDO has been proposed by some people, but no decision has been made," Atsushi Fukuda, the ministry's director for innovation promotion, told Reuters.
Beneficiaries from the plan could include Japanese makers of robots, autonomous vehicles, sensors and ceramics along with advanced nanotechnology bonding, which by largely doing away with the need for nuts, bolts and rivets could make military aircraft lighter and faster, the sources said.
Dual-use research could help firms such as Toray Industries, the world's leading maker of carbon fiber, stay ahead of foreign competitors by creating lighter and stronger fibers for military markets that initially would be too expensive for commercial customers, added the sources.
Toray supplies the carbon fiber that Boeing uses in the body of its 787 Dreamliner.
"We have not done military work before, and I can't comment on whether it is something we would do," said a Toray spokesman.
Research into Japanese weapons systems has for the past six decades been the sole responsibility of the Defense Ministry's Technical Research and Development Institute.
That changed last year when the government established a $500 million innovation fund to partly help university research into some dual-use projects over the next five years.
NEDO has a high profile in Japan.
In 2010, when China curbed exports of rare earths used extensively in hybrid car engines, NEDO initiated projects to develop parts that eliminated or severely reduced their use.
It has also played a role in the development of non-toxic coatings for consumer electronics, flat panel display films, x-ray medical scanners, energy efficient engines and fuel cells.
Although Japan has yet to conclude any major overseas weapons deals, such contracts could help lower arms procurement costs for the government by significantly widening the potential market for companies such as Mitsubishi Heavy Industries and Kawasaki Heavy Industries.
Abe's strategy on defense technology harks back to Japan's 19th Century transformation from a feudal society to an industrialized nation that was in large part driven by rapid military modernization.
"The way of making Japan strong is through technology," said Atsushi Sunami at the National Graduate Institute for Policy Studies, who also advises the government on industrial innovation policy.
"We don't have oil, we don't have natural resources. Our ancestors realized when they started to open up Japan that what we have is people and technology."
Editing by Dean Yates