Seiko Hashimoto's response to a question in the upper house of parliament implies the Tokyo Olympics could be held later in the year and would not have to start on July 24 as planned. The Paralympics open on Aug 25.
The Games are being threatened by the spread of novel coronavirus pneumonia that has been blamed for 12 deaths in Japan and has shut down most schools, sports competitions and Olympic-related events in the country.
"The IOC has the right to cancel the Games only if they are not held during 2020," Hashimoto told the parliament. "This can be interpreted to mean the Games can be postponed as long as they are held during the calendar year."
However, any halt to the Games would be costly.
The latest budget is 1.35 trillion yen ($12.51 billion), with Japan's government providing 120 billion yen to build the Olympic Stadium and 30 billion yen toward the cost of the 2020 Paralympics, Hashimoto said.
Japan's Board of Audit put government spending between the bid in 2013 and 2018 at 1.06 trillion yen.
To curb the coronavirus, Japan's government has asked schools to close and encouraged the curtailment of events, including sports meetings, that could attract large crowds.
Japan Para Sports Association and the Tokyo 2020 Olympic and Paralympic organizers said on Tuesday they would cancel a wheelchair rugby test event this month due to the outbreak.
IOC President Thomas Bach and Tokyo organizers have repeatedly said they expect the Olympics to open on schedule.
Hashimoto was asked if she believed the Olympics should be held even if the coronavirus outbreak is worse than it is now.
"We are making the utmost effort so that we don't have to face that situation," she said.
The Olympics have been canceled only three times, all during wartime.
On Tuesday, the IOC kicked off an executive board meeting to discuss the threat of the corona-virus to the Tokyo Olympics, with its president pledging success.
"We are all healthy and looking forward to the meeting," a smiling Bach told reporters on arrival at the IOC headquarters in Lausanne, Switzerland.
"We are preparing for a successful Olympic Games Tokyo 2020," he said.
However, multiple sports events around the world have been canceled during the epidemic, which has spread to more than 60 countries.