Tokyo insists the strength of its ties with Canberra will not be affected by the approval of a South Korean defence company gaining a greater stake in an Australian-based shipbuilder expected to build Japanese ships.
Treasurer Jim Chalmers announced on Friday he would clear the path for Hanwha to increase its shareholding in Austal, the nation's sovereign shipbuilder, from 9.9 per cent to 19.9 per cent.
Dr Chalmers said his decision was based on a recommendation from the Foreign Investment Review Board.
"My decision was not taken lightly and comes after extensive consultation and long and careful deliberation," he said.
"It follows a thorough and robust process that took account of all the relevant economic, national security and other national interest issues."
The Japanese had expressed concerns with Hanwha's attempt over the protection of intellectual property.
A spokesperson for the Japanese embassy said Tokyo would be reviewing the details of the announcement.
"Japan and Australia remain in close communication on the protection of Japan's technological information and intellectual property," they said.
"This decision will not impact the strength of Japan-Australia relations."
Austal is expected to build Japanese vessels at Perth's Henderson shipbuilding precinct after the North Asian nation's Mitsubishi Heavy Industries was selected to supply its upgraded Mogami-class frigate for Australia's navy at a cost of $10 billion.
In a statement, Hanwha Group welcomed the approval of its application.
"We have always been confident of the benefits our investment will bring, and we will leverage our capabilities and insights for the benefit of the company and its stakeholders," Hanwha aerospace chief executive Jae-il Son said.
"We are pleased with the outcome of the ... process and we look forward to having productive discussions with Austal on the strategic path ahead."
Australia is seeking to deepen its defence ties with Tokyo amid rising concerns over Chinese aggression and the expansion of its military presence in the Indo-Pacific.
The federal government said the South Korean company would remain the minority shareholder and would not be able to increase its stake beyond 19.9 per cent.
It said greater protections would be imposed through a "number of strict conditions" relating to governance and security.
These include limiting Hanwha's access to sensitive information, restrictions on the storage of sensitive information and stringent criteria on any Hanwha nominee to Austal's board.
Defence Minister Richard Marles met his Japanese counterpart Shinjiro Koizumi in the past week.
