Defense spending in fiscal 1998 will be reduced by 0.3 percent, or roughly 12.4 billion yen, from the 4.9 trillion yen allocated in this fiscal year's initial budget, the Finance Ministry and Defense Agency agreed Thursday.

It will be the first time since the present Defense Agency was established in 1954 that defense-related expenditures will be cut from the previous year's budget levels, finance ministry officials said.

Under the austere budget-request caps set during the summer, the Defense Agency was not allowed to make demands exceeding the current fiscal year's figure. The agency agreed to the cut during an evening meeting between Finance Minister Hiroshi Mitsuzuka and Defense Agency Director General Fumio Kyuma.

The cuts are mainly the result of recalculations in civil servants' wages. Expenditures related to the implementation of a report on realignment of U.S. forces in Okinawa, drawn up by the Special Action Committee on Okinawa, were not covered by the budget request cap and are still being discussed, ministry officials said.

In contrast, Prime Minister Ryutaro Hashimoto and Finance Minister Hiroshi Mitsuzuka decided Thursday to allow ministries and agencies to order by the end of this fiscal year 1.5 trillion yen worth of materials necessary for public works projects in the next fiscal year, Chief Cabinet Secretary Kanezo Muraoka told reporters.

The contract authorization was decided on to help boost the economy, Muraoka added. The corresponding amount stood at 1 trillion yen in the last fiscal year.