The option was one of several presented by the group of experts charged with sorting out the thorny issue. They are expected to make a final recommendation in March.
Last summer, Emperor Akihito, 83, expressed a desire to abdicate after nearly three decades on the Chrysanthemum Throne, one of the world's oldest monarchies, citing his advancing age and weakening health.
The news sent shockwaves across Japan and unleashed a flood of questions. Japan has had abdications in its long imperial history, but the last one was over 200 years ago and there is no mechanism for one under current laws.
"This is a very serious issue and we need to discuss it carefully," said Prime Minister Shinzo Abe, who attended the panel's meeting.
Abdication is a sensitive issue in light of Japan's modern history of war waged in the name of Akihito's father Emperor Hirohito, who died in 1989.
Some scholars and politicians worry the issue could open a can of worms and risk Japan's monarchs becoming subject to political manipulation. Under the constitution they play only a symbolic role.
Japanese media have previously reported that the government is planning for Akihito to retire and be replaced by his eldest son, Naruhito, on January 1, 2019.
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