The Cabinet on Tuesday approved a bill designed to help companies develop secure 5G mobile networks and drone technologies amid growing alarm among policymakers about the increasing influence of Chinese technology.
The government will submit the bill to the Diet with the aim of having it take effect around summer.
In its current form, the bill would give companies that develop such technologies access to low-interest loans from government-affiliated financial institutions if their plans fulfill standards on cybersecurity.
Companies that adopt 5G technologies would also get tax incentives if they meet standards set by the government.
The United States has been waging a campaign against Huawei Technologies Co, which Washington has warned could spy on customers for Beijing.
Huawei has repeatedly denied those claims.
The U.S. and some allies, including Australia, have shut Huawei out of 5G rollout plans, while others, including Britain, have allowed it a limited role.
In December, the government unveiled tax measures aimed at encouraging companies to spend their cash piles on startups and other investments while also helping firms to compete with China's advance in 5G technology.