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The three countries are pooling their know-how in cutting-edge air combat technology to develop the jet, which they hope will be ready by 2035.
Government spokesman Yoshimasa Hayashi said the cabinet had approved the change to Japan's arms export rules, following agreement by the ruling coalition earlier this month.
Previously the export of military equipment to a third country was forbidden, although there have been some exceptions in recent years.
"The plan to make fighter jets with capabilities essential for the security of our nation must be realised, to ensure that our nation's defences won't be compromised," Hayashi told reporters.
"We need to have a system in place that would allow us to transfer defence equipment to countries other than our partners, and to make contributions on par with the UK and Italy."
The planes can only go to countries not involved in active conflicts and that have signed an international pledge to use the weapons in accordance with UN charters.
Each individual export will need cabinet approval -- a "stringent system" that "allows us to demonstrate to people in Japan and the world that we will maintain our fundamental principles as a pacifist nation", Hayashi said.
Japan's post-war constitution limits its military to ostensibly defensive measures.
Even so, the country has overhauled its security policy in recent years, explicitly outlining the challenge posed by China. It plans to ramp up defence spending to the NATO standard of two percent of GDP by 2027.
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