The 83-year-old emperor said last year that his age and health were making it hard for him to fulfil his official duties.
But there is no provision under existing law for him to abdicate and be succeeded by Crown Prince Naruhito.
The bill will now pass to the parliament, where it is widely expected to be passed.
It would be the first time a Japanese emperor has stepped down since Emperor Kokaku in 1817.
Chief Cabinet Secretary Yoshihide Suga told reporters on Friday that the government “hopes for the smooth passage of the legislation”.