Shares in Japan's largest defense company Mitsubishi Heavy Industries climbed nearly 4% Monday after the country finalized an agreement with Australia for building three general purpose frigates.
This will be Japan's first ever warship export project, with the first vessel scheduled to be delivered to the Royal Australian Navy in 2029. Shares of MHI have gained about 75% in the last 12 months.
The 10 billion Australian dollar ($7.15 billion) deal, first announced in August, comes on the back of reports that Japan is preparing to loosen its restrictions on arms shipments later this month, paving the way for the official export of lethal weapons.
Canberra, meanwhile, has committed as much as AU$20 billion toward a fleet of 11 general purpose frigates. The first three will be built by MHI.
The new warships, based on the upgraded Mogami-class frigate, will replace the current ANZAC-class in the Australian Navy, which have been in service since the 1980s.
Japan's MHI beat German rival ThyssenKrupp Marine Systems to bag the deal. Japan said Australia could receive the first of the upgraded warships ahead of its own navy, tipping the AU$10 billion contest in MHI's favor, according to Australian news outlet ABC.
Nikkei reported that other companies involved in the deal include NEC Corporation, Mitsubishi Electric and Hitachi, which will provide radar, antenna and other systems for the ships.
Shares of Mitsubishi Electric were up last 3.64%, while Hitachi saw a smaller gain of 0.8%. NEC shares slipped 0.6%.
In its National Defence Strategy released on April 16, Canberra identified that China's "growing national power and increasingly potent military capabilities" will be the main factor in security dynamics in the Indo-Pacific region.
The report added that Beijing will continue to prosecute its maritime and territorial claims in the South and East China Sea, using the People's Liberation Army and China Coast Guard.
"PLA intercepts of foreign military vessels and aircraft operating under international law in international waters and airspace are becoming more frequent and, at times, are unsafe and unprofessional."