The $44 billion (5.1 trillion yen) Defense Ministry spending plan puts a focus on defending the Senkaku Islands, the chain in the East China Sea administered by Japan but also claimed by China, which calls them the Diaoyus.
The budget includes billions of yen for six new submarines equipped with improved sensor technology that could also prove useful against Chinese challenges.
The subs can "deal with attacks against the islets," the budget says.
Analysts consider the Japanese Maritime Self-Defense Force's submarine fleet to be one of its core strengths, with its focus on a specific mission -- defense.
"The Japanese government since the 1950s has carefully invested in its submarine program and basically perfected not only the technology but the procurement process," said Corey Wallace, Japan security analyst at Freie University in Berlin.
In a separate Transport Ministry budget, the Cabinet approved a 12% increase for the nation's Coast Guard, again with an emphasis on protecting the Senkakus.
Japan is expected to add several new ships to the Coast Guard, including one capable of carrying a helicopter, according to the Transport budget.
The area around Senkakus has been the site of repeated confrontations between Japanese and Chinese forces this year.
Earlier this month, China's Defense Ministry said that the Japanese jets "interfered with Chinese military aircraft
from close range and even launched jamming shells, which endangered the safety of Chinese aircraft and crew."
Japan said that fighter jets were scrambled when six Chinese military aircraft "trespassed" into its territorial waters in the Miyako Strait, near the Senkakus.
Looking toward another potential adversary, North Korea, Japan will invest in the latest US-developed ballistic missile interceptors for its ship-based Aegis missile defense system.
It will also pour money into upgraded ground-based ballistic missile interceptors.
North Korean test missiles
this year have reached into Japan's Air Defense Identification Zone, and Japan has called them a "serious threat" to its security.
Capping off the upgrades in the defense budget is money for six more F-35 Lightning stealth fighters.
The budget says the F-35s will "improve the deterrence and coping ability' of Japan's Air Self-Defense Force.
Japan received its first of the fifth-generation fighters last month when it was delivered from a factory in Texas. Future F-35s will be made in Japan.
Japan's new defense budget amounts to about 1% of its gross domestic product, meaning the country gets a lot of bang for its military money.
China spends about 2% of its GDP on defense and the US around 3.3%, according to figures from the World Bank.
According to an IHS Jane's Defense Budget report earlier this month, between 2011 and 2015, the key states surrounding the South China Sea spent $166 billion on the procurement of defense equipment.
Between 2016 and 2020 that number is expected to increase to $250 billion, with priorities shifting towards air and naval capabilities.
"A key trend in APAC is the shift from a traditional focus on territorial defense towards power projection," said Craig Caffrey, a principal analyst at IHS Jane's.
"This is new for the region and is likely to increase military-to-military contact between states," added Caffrey.
Even with a lower level of spending than China, Japan has produced a military that is shaping up to be among the world's best, an
This also comes despite a constitution imposed by the United States after World War II that limited the country's forces to defensive purposes only.
"Pilot for pilot, ship for ship, Japan can stand toe to toe with anybody," said John T. Kuehn, a professor of military history at the U.S. Army Command and General Staff College.