By Tim Kelly and Nobuhiro Kubo
TOKYO, Nov 16 (Reuters) - The Japanese and Philippine leaders will agree this week on a deal paving the way for Tokyo to supply Manila with used military equipment, possibly including aircraft that could be deployed to patrol the disputed South China Sea, sources said.
The deal will mark the first time Japan has agreed to directly donate military equipment to another country, and is the latest example of Prime Minister Shinzo Abe's more muscular security agenda.
The agreement in principle on military technology will be announced after Abe and President Benigno Aquino meet on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Manila, said three sources in Tokyo who are familiar with the issue.
It will commit Tokyo and Manila to discuss the type and scale of Japanese military aid, added the sources, who declined to be identified because they were not authorised to talk to the media.
The Philippines is the Southeast Asian country most at odds with Beijing over the South China Sea. Tokyo has no claims in the waterway, but is worried about China's growing military reach into sea lanes through which much of Japan's ship-borne trade passes.
"APEC is an opportunity for us to show how far our cooperation has come," one of the sources said.
Abe and Aquino are due to meet on Wednesday.
A Tokyo-based spokesman for the Japanese Foreign Ministry, which the sources said has been handling the agreement, said he had no information on the matter. The Philippine Foreign Ministry declined to comment while Philippine military officials could not immediately be reached for comment.
While the agreement won't include specific aid for now, Japan may begin by supplying three Beechcraft TC-90 King Air planes currently used to train Japanese Self Defense Force pilots that can be fitted with basic surface and air surveillance radar, sources with knowledge of the plan have previously said.
That might then be followed by used Lockheed Martin submarine-hunting P3-C patrol planes, they said.
Rather than challenge Beijing directly by sending warships or planes to patrol the South China Sea, Japan is building the military capacity of friendly nations in the region that have claims to parts of the waterway such as the Philippines, Vietnam and Malaysia.
Chinese President Xi Jinping will attend the APEC leaders' summit on Wednesday and Thursday. While the South China Sea is not on the formal agenda of the trade-dominated discussions, it is likely to feature in talks on the sidelines.
To allow Japan's first direct donation of military equipment, Japanese lawmakers will either have to tweak financial regulations that require officials to sell second-hand government-owned equipment at fair market value, or establish a financing mechanism outside overseas development aid, which can't be used for military purposes.
In June, Abe and Aquino agreed to begin talks on a visiting forces agreement that would open the way for Japan to use bases in the Philippines to refuel aircraft and resupply naval vessels.
Japan is also building 10 vessels for the Philippine coastguard.
(Additional reporting by Manuel Mogato in Manila; Editing by Dean Yates and Alex Richardson)