Echoing a US Pentagon report two weeks ago that said Chinese military power could pose a threat to the region, an annual white paper by the Defense Agency called to keep a close eye on the modernization of China's armed forces.

But amid strained relations between the two countries, Defense Agency Director-General Yoshinori Ono stressed that Japan was not accusing China of threatening the country.

"China is not a threat to Japan but there is a point that deserves our attention," Ono told reporters after a meeting of Prime Minister Junichiro Koizumi's cabinet.

"Japan has to keep a good relationship with China as we are neighbors. However, I just hope China will enhance transparency on how much its military spending is growing by," Ono said.

The study said China had not made it clear how much it was spending on its military but that expenditure was rising rapidly.

"China, which is steadily growing as a political and economic power in the region, continues to strengthen its military capabilities. Such trend draws attention from other countries in the region," the white paper said.

"It is necessary to keep paying attention to these modernization trends and to carefully evaluate whether the modernization of China's military forces exceeds the level necessary for its national defense," it said.

China said its defense budget for fiscal 2005 would be 244.7 billion yuan, or more than 30 billion dollars, a roughly 12.6 percent increase from the previous year, the study said.

However actual expenditure could be bigger, noting that costs for equipment procurement and research and development may not be reflected in the sum, it said.

"It is more than desirable that China will make an additional effort to improve transparency of its defense policy and military capabilities," it said.

Beijing accused Japan of exaggerating the "China threat" and warned that the white paper risked harming ties.

"It is groundless and irresponsible for Japan to exaggerate the so-called 'China threat' in its official document," the official Xinhua news agency said, quoting foreign ministry spokesman Kong Quan.

"It would mislead the public, result in suspicion of each other and opposition to each other in emotions, and harm the Sino-Japanese relations," Kong said, according to Xinhua.

Japan last year upset China by mentioning Beijing for the first time as a potential threat in its defense policy guidelines when they were updated after nine years.

The two nations have seen their relations deteriorate in recent months as they dispute over energy resources and how they remember Japan's 1931-1945 occupation.

Separately, the Defense Agency said it was not clear if North Korea, which is holding marathon talks in Beijing with five nations including Japan on its nuclear program, was bluffing about its nuclear capabilities.

"There are views that North Korea is resorting to brinkmanship by intentionally heightening tension" by boasting of nuclear weapons, the study said.

But it said "the possibility of North Korea having considerably advanced its nuclear weapons program cannot be excluded."

"North Korea needs to be watched carefully because of the problems it poses with its development, deployment and proliferation of ballistic missiles as well as the nuclear problems in general," it said.

North Korea fired a missile over Japan into the Pacific in 1998, leading Japan and the United States to begin work on a missile defense shield.

The Defense Agency said Japan's close alliance with the United States, which stations more than 40,000 troops in officially pacifist country, was important "in maintaining peace and stability" in the region but that China seemed "wary" of Washington.

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