But the Future Submarine Program has turned out to be politically controversial, especially with regards to foreign participation in the construction process.

Japan, along with France and Germany, is one of the three competitors chosen by the Australia government to make bids for the project. Japan’s position is somewhat different from the other two candidates. First, because Japan is an Asian country and Australia has historically depended on the United States and Europe for its defence needs. Second, because Japan initially seemed to be the uncontested preferred supplier. But, under domestic political pressure, the Australian government later announced a ‘competitive evaluation process’ and invited the other two contenders to enter the race.

Since World War II, Japan became one of Australia’s foremost economic and trading partners. Japan remained Australia’s largest trading partner for more than three decades until 2007 when it was unseated by China. While Australia’s economic ties with China have strengthened and Japan continues as its number two commercial partner, Australia and Japan began to develop ever deeper and broader security and strategic links. In 2007, Japan and Australia signed a Joint Declaration of Security Cooperation — Japan’s first such security agreement after its alliance with the United States.

Japan and Australia today interact in a joint 2+2 dialogue involving the defence and foreign ministers, through training and exercises between their respective armies, navies and air forces, meet regularly through personnel exchanges, and cooperate in humanitarian assistance and disaster relief, maritime security and peacekeeping. More recently the two have signed treaty-level agreements on cooperation in defence, science and technology, security of information and the transfer of defence equipment and technology. The scope of defence cooperation is broadening and strengthening with possibilities of further cooperation in the fields of air and missile defence, and maritime warfare technologies.

Like Australia, Japan is a security ally of the United States and this link has brought the three nations together to cooperate in defence and security matters. The three now meet regularly in a trilateral security dialogue process. Such bilateral and trilateral meetings, dialogue and exchanges over the years have led to a high degree of strategic trust between Australia and Japan.

Since Japan has historically maintained self-imposed restrictions on arms exports, there was little scope for it to sell defence equipment. But under Prime Minister Shinzo Abe Japan relaxed these restrictions in April 2014. This has opened a new window of opportunity for cooperation between Japan and Australia given the high level of strategic trust underpinned by their common security alliance with the United States.

In the beginning of the submarine project announcements, Japan took a rather laid-back approach towards the deal, as it was under the impression that the project would be offered to Japan to deliver its Soryu-class submarines to Australia, with the required modifications to suit Australian needs.

But when the story broke in the Australian media, political leaders swung in action as stakeholders wanted a share of the political and economic spoils of this large defence contract. The state of South Australia, where the government-owned Australian Submarine Corporation is located, expressed concerns about the future of its defence industry and job losses. The opposition Labor Party, as well as dissenters within the Coalition government, demanded that the process be made transparent and that jobs and technology remain in Australia as much as possible. This paved the way for a competitive evaluation process.

Reports suggest that all three countries competing for the contract have submitted their bid and that a final decision is likely to be made by the middle of 2016. The question on everyone’s lips is whether Japan will get the deal or not — and in either case how it will affect Australia–Japan relations and the broader regional order.

If Japan secures the deal, it looks likely that Australia–Japan relations will move up several notches, especially in the security and defence realms. The United States will be a strategic winner given Washington’s expectation that its allies cooperate and share the defence burden to assist its ‘rebalance’ to Asia. Major regional powers — with the probable exception of China — will generally endorse Japan’s success in its first large-scale defence contract in the region.

Japan’s sagging profile in Australia will also get a significant boost. Japan’s image has been eclipsed locally by China in recent years and Japan would have good reason to celebrate obtaining the submarine contract as the two northeast Asian giants compete for power and influence in the region.

With so much to gain for its defence industries and its relationship with a key security partner, Japan will of course be hugely disappointed if it misses out on Australia’s submarine contract. But Tokyo would respect Australia’s position and processes, maintaining its linkages and trying to strengthen bilateral ties through other means. This is what a mature bilateral relationship based on long-term shared values and institutions is, and should be, all about.

Purnendra Jain is Professor at the Department of Asian Studies, University of Adelaide.