The Financial Times said officials had told the paper that Japan would support the sanctions if Iran did not suspend uranium enrichment and accept a package of incentives from the international community.
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"Japanese officials were reluctant to be pinned down on the timing or trigger for any possible move," the report said.
But it cited one unnamed official saying that Japan could use its foreign exchange powers to freeze foreign assets in an emergency.
The paper said Japan expected Iran to respond by suspending loan repayments to Tokyo but was "betting" that the Islamic republic would not cut off supplies of oil.
The five permanent UN Security Council members — Britain, China, France, Russia and the United States — plus Germany have offered Iran a package of incentives and multilateral talks if it agrees to halt uranium enrichment.
That work is at the centre of fears the hardline regime could acquire nuclear weapons, though Tehran insists it is only to provide fuel for nuclear energy.
US President George W. Bush has warned of UN Security Council action, which could mean sanctions, if Iran does not comply.