Hundreds of firms had been expected to apply for cash rewards in exchange for reaching targets to place women in high-ranking jobs and train female workers for senior positions.
Under the plan launched last year, successful firms would each receive up to 300,000 yen ($2,500) in compensation.
But a 120 million yen budget earmarked for 500 expected applicants went unused, said a spokeswoman for the health ministry which administered the programme.
The spokeswoman blamed the strict conditions for qualifying for the scheme, admitting it was “not a good programme”.
A less stringent offer would begin from October with the payout doubled in some cases, she said.
The misstep comes as Prime Minister Shinzo Abe vowed to push initiatives for women’s empowerment at a United Nations meeting in New York Sunday.
Last month Japan enacted a law forcing larger firms to disclose their targets for hiring female employees and promoting them to senior positions.
Abe has repeatedly said women were key to his bid to kickstart the world’s number three economy, dubbed “Abenomics”, and has pushed for them to fill more senior roles in politics and business.
Japan has one of the lowest rates of female workforce participation in the developed world, and most economists agree it badly needs to increase the number of working women as the population rapidly ages.
A lack of childcare facilities, poor career support and deeply entrenched sexism are blamed for keeping women at home.