TOKYO (Reuters) - Japan will identify North Korea as a threat and call China’s military activities a concern in a review of its defense policy that will include plans to beef up its ability to cope with Beijing’s rise, a newspaper reported on Monday.

The update of the National Defense Program Guideline, the first since 2004, is expected this month as Japan confronts China’s military build-up and North Korea’s deadly shelling of a South Korean island.

The review will be the first since Prime Minister Naoto Kan’s Democratic Party of Japan (DPJ) took government last year.

“To organize our own defense capabilities is something that our country certainly needs to do. This does not directly link to posing a threat to another country,” Kan told a news conference.

The guideline will outline a new stance called “dynamic defense capability” which will call for deterring China around Japan’s southern islands, while also responding to terror and guerrilla attacks, the Nikkei business daily reported.

A long-running territorial feud between Japan and China resurfaced in September when Japan detained a Chinese skipper whose boat collided with Japanese patrol ships near disputed islands in the East China Sea. He was later released.

A draft appendix to the guideline will include plans to increase the number of submarines to 22 from 16 and strengthen the air force’s fighter plane contingent, the Nikkei added.

The guideline will also call for stronger security cooperation, not only with the United States but also with allies South Korea and Australia, the paper said.

Concerns over the health of the U.S.-Japan alliance emerged after the DPJ took power and then-Prime Minister Yukio Hatoyama pledged to try to move a U.S. Marines airbase off the southern island of Okinawa, host to about half the U.S. forces in Japan.

But China’s rise and threats from North Korea have increased incentives for Tokyo and Washington to reaffirm ties. Japan’s constitution bans the maintenance of a military although it has been interpreted to allow armed forces for self-defense.

China’s defense spending has nearly quadrupled over the past decade, while that of Japan, saddled with a weaker economy and a public debt twice the size of its $5 trillion economy, shrank by 4 percent, according to Japan’s defense white paper.