Japan is planning to cut crude oil imports from Iran by higher-than-expected 20 percent or more a year. In an effort to win waivers from U.S. sanctions, Japan is in final talks with Washington, which should result in a basic agreement by the end of February, a report in the Nikkei business daily says. Washington is pushing ahead with sanctions because it fears Iran might use the money from the sale of oil to develop nuclear weapons

Earlier this week in Tokyo, Japan’s trade and foreign ministers said that Tokyo was closing in on an agreement with Washington but gave no indication of the size of the cuts in crude imports fromIran. According to some newspaper reports, the two sides would settle on cuts of at least 11 percent.

Government officials in Tokyo declined to confirm if Japan had tabled a specific percentage target for cuts that would exceed average declines of 11 percent per year that Tokyo points to from 2007-11.

Japan procured 313,480 barrels per day of crude oil from Iran in 2011. Iranian crude imports would fall by more than 62,700 bpd to less than 251,000 bpd this year, if cuts of more than 20 percent were agreed.

The United States has said it will impose restrictions on financial institutions that deal withIran’s central bank, by shutting them out of U.S. markets. A country can earn a waiver from the sanctions if it significantly reduces trade withIran.

Japan is going ahead with the agreement because it fears that if the sanctions come into force, its financial sector would be severely affected. Three of the country’s biggest banks, Mitsubishi UFJ Financial, Mizuho Financial and Sumitomo Mitsui Financial, currently handle payments to Iran, and face the prospect of penalties. Japan has had close diplomatic ties with Iran in the past.

Though avoiding sanctions is essential to protect the Japanese financial sector’s operations abroad, the Japanese government realizes that shifting oil purchases to other countries could boost prices, at a time when Japan’s reliance on imports has grown since the Fukushima radiation crisis led to most nuclear reactors at Japanese power plants being shut down.

Most of the biggest importers of Iranian crude are planning cuts of at least 10 percent. China, India and Japan, the top three buyers of Iranian oil, together buy about 45 percent.

The new U.S. sanctions come into force for non-petroleum transactions with the Iranian central bank on Feb. 29 and for oil-related transactions on June 28. The European Union has also imposed embargo on Iranian oil imports, which takes effect from July 1.