The government is set to compile a supplementary budget of around ¥2.9 trillion ($25.9 billion) for the fiscal year through March to cover spending on missile defense amid tensions over North Korea, and for new economic measures, government officials said.

North Korea has tested dozens of ballistic missiles, two of which flew over Japan, and conducted its sixth and largest nuclear bomb test in September.

Japan is preparing to acquire precision air-launched missiles that for the first time would give it the capability to strike North Korean missile sites, two sources with direct knowledge of the matter said earlier this week.

The extra budget will also be used to provide financial assistance for small and midsize companies to encourage innovation and to build more children's nurseries for families with working parents. Both are part of Prime Minister Shinzo Abe's new "productivity revolution" policy.

The budget will also earmark money to help the country cope with any negative fallout from free trade agreements such as the Trans-Pacific Partnership and an economic partnership agreement with the EU.

To finance the extra budget, the government plans to sell about ¥1.2 trillion of construction bonds and cover most of the rest with leftover debt-servicing money.

The government, for years, has over-estimated debt servicing costs when compiling the initial budget and used the remainder for extra budgets.