Kawasaki Heavy Industries is in talks to co-develop new engines for Germany's Taurus cruise missiles, two sources familiar with the matter said, another potentially significant step in Tokyo's retreat from decades of pacifism.

The Japanese contractor signed a memorandum of understanding on the project on the sidelines of a defense show in Tokyo in May, said the sources, speaking on condition of anonymity due to the sensitivity of the issue.

Kawasaki declined to comment. A spokesperson for European defense company MBDA, which builds the weapon, said it was not able to provide any comment on the matter at this time.