Prime Minister Scott Morrison says an in-principle agreement with Japan on defence cooperation rules is a "pivotal moment" in relations between the two countries.
It's also expected to send a clear signal to the wider region that Japan is prepared to work more closely with Australia and other nations on security, as China flexes its military might.
Mr Morrison met with Japanese counterpart Yoshihide Suga in Tokyo on Tuesday, becoming the first world leader to meet with the new prime minister on Japanese soil since he took over from Shinzo Abe.
The defence deal - known as the reciprocal access agreement - sets out the terms and conditions for the Australian and Japanese militaries to undertake exercises on each other's soil, covering such areas as customs, taxation, fuel and munitions.
One of the sticking points of the agreement - which has been in negotiation since 2014 - has been Australia objecting to its defence force members being subject to the death penalty in Japan.
But the leaders have agreed that in terms of criminal jurisdiction each case will be treated individually.
Mr Suga and Mr Morrison are expected to formally sign the treaty in Australia next year.
Once signed, it would be the first such deal for Japan since the 1960 status of forces agreement with the United States.
"The reciprocal access agreement represents a pivotal moment in the history of Japan-Australia ties," Mr Morrison said.
"We share a special strategic partnership and are deeply committed to working together in support of a free, open, inclusive and stable Indo-Pacific.
"Our partnership is built on shared values and interests, and enduring trust and respect."
Depending on the final terms, it may require the Australian parliament to pass implementing laws, but it will be scrutinised by the treaties committee.
It would also need the approval of Japan's parliament.
Earlier, Mr Morrison held talks with energy company executives, laying out Australia's plan to develop a hydrogen industry and other low emissions technology.
Mr Suga is committed to delivering net zero emissions by 2050 and taking a global lead on clean energy.
"Can I just say that Australia also shares an ambition for net zero emissions," Mr Morrison told the business leaders.
"But what we are focused on is how get there and (how) that can be achieved."
The first pilot shipment to Japan of hydrogen from Victoria is due in March.
The meeting included Japan-Australia Business co-operation committee chairman Akio Mimura and Tokyo Gas chairman Michiaki Hirose.
Mr Mimura said business chiefs in Japan were focused on achieving the "three Es" - economy, energy and environment.
"In order to achieve this, hydrogen must come down in costs (and) ... stability of supply must be ensured," he said.
Mr Morrison met with International Olympic Committee president Thomas Bach to discuss plans for next year's postponed Tokyo Games, and Queensland's aspiration to host the 2032 event.
Queensland bid negotiations have been put on hold due to the pandemic.
On his return, the prime minister will go into isolation at The Lodge for 14 days, which will also mean he will have to video link in to parliament when it sits later in the month.