Prime Minister Shinzo Abe approved a plan to shoot down any foreign drones that violated Japan's airspace in response to China's flying a drone near the disputed islands in September, the Voice of America reported.
The remote islands are known as the Senkaku in Japan and Diaoyu in China.
Japan's exercises begin as China wraps up its own war games. China's navy conducted drills in the West Pacific with all three of its naval fleets.
China's military spokesman said his country would consider an attack on its aircraft an act of war and would retaliate, VOA said.
Rory Medcalf, director of the international security program at the Lowey Institute, told Voice of America China's introduction of drones into the island dispute and pledge to defend them, has intensified the standoff.
"So, the Chinese have kind of put Japan into an awkward position. If it lets them pass, or if it lets them fly over disputed, contested airspace then China is further establishing its presence there," he said. "But, if Japan strikes back, then it's really escalating tensions potentially towards conflict."
Also this week, Abe said Japan would not tolerate use of force by China to change the status quo in the dispute, to which Beijing said Japanese politicians were "arrogant" and "self-deceiving."
"The real problem isn't really so much the war of words," Jeff Kingston, director of Asian Studies at Japan's Temple University, told VOA. "It is that the jet scrambling and fleets navigating in the disputed area, there could be a miscalculation with serious consequences."