Japan reluctantly imports rice from China, Vietnam and other countries to meet international commitments to open its market.
Rice, either domestic or imported, that exceeds pesticide levels or is contaminated with fungi is set aside and sold by the government to private dealers for industrial use such as making glue and animal feed.
Three Japanese companies have been accused of reselling tainted rice as edible. One of them, Mikasa Foods, resold some of the bad rice to liquor and confectionery makers at a huge profit margin, according to the farm ministry.
Some of the rice has found its way into meals at hospitals and nursing homes.
"We are considering measures such as shipping back tainted rice if it is found to have been imported," said Seiichi Ota, the farm minister.
Such a move could cause trade frictions for Japan, whose protection of its rice farmers has become a controversial issue in global trade negotiations.
Ota said the government may simply incinerate bad rice to ensure it does not hit the market.
"The toxin may be neutralised in the process of producing liquors. But it is quite serious that the tainted rice has been fed into the mouths of people," the farm minister said.
Another minister said the government was examining how the tainted rice had been distributed through the three dealers.
"We will announce an interim report on the survey early next week," said Chief Cabinet Secretary Nobutaka Machimura, who serves as the government's spokesman.
He said the government had yet to receive any reports on health problems resulting from the tainted rice but that "the government for its part has to take the matter more seriously."
The tainted rice scare has prompted many liquor and food producers to recall their products.
On Thursday, a major Japanese beverage company, Asahi Breweries Ltd., said it was voluntarily recalling some 650,000 bottles of distilled spirits it had made with the pesticide-tainted rice at a cost of about 14 million dollars.