PM on verge of Japan trade pact

Tony Abbott is on the verge of sealing a free trade agreement with Japan potentially worth tens of billions of dollars to the Australian economy.

The deal hinges on Japan improving its offer to slash tariffs on Australian beef, and trade officials hoped it could be clinched at a dinner attended by the Prime Minister and his counterpart Shinzo Abe last night.

An FTA would not only improve the worth of agricultural exports to Japan, already Australia's second-biggest export destination, but also open up opportunities in financial services, health and education.

Behind the scenes, the countries have also been negotiating an historic security pact for Japan and Australia to co-operate on the development and trade of defence technologies.

Mr Abbott, who last year described Japan as Australia's "best friend in Asia", has already expressed support for Mr Abe's bid to amend Japan's constitution, which bans military activity except in self-defence.

This repositioning of Australia's stance on Japan's official pacifism, which dates back to World War II, is believed to have aided FTA negotiations, notwithstanding Australia's win in the International Court of Justice last week to stop Japan's whale hunt in the Southern Ocean.

China's growing assertiveness in the region, including its declaration of an air defence zone over disputed territory, has Japan nervous.

Mr Abbott told a Friends of Australia barbecue - attended by a who's who of Australian business executives including Kerry Stokes, James Packer and Sir Rod Eddington - that Japan had been an "an absolute model citizen for many decades now".

Australia has been pushing Japan to cuts its 38.5 per cent tariff on Australian beef to below 20 per cent, a move that would generate between $300 million and $400 million a year. It is understood Japan has been willing to consider a figure in the low 20s.