Prime Minister Shinzo Abe and Myanmar President Thein Sein signed the deal in summit talks following a gathering of leaders from the Association of Southeast Asian Nations in Tokyo.
Japanese businesses have been eager to invest in Myanmar and have stepped up their activities there after Thein Sein's reformist government came to power in 2011 after nearly 50 years of military rule. Japan's trade ministry said the agreement is intended to provide greater protections and a stable legal environment for investors.
Attracting foreign investment and lending is crucial for aiding the expansion of Myanmar's resource-rich economy. The country has significant growth potential but is burdened with an inefficient farm sector. It also lacks a manufacturing base after decades of foreign sanctions and restrictive laws under military rule.
The treaty calls for Japanese investors to receive the same protections provided to other foreign investors under international rules and prohibits the imposition of export, technology transfer or other requirements in exchange for such investments. It is also intended to improve transparency, key for a country struggling with endemic corruption.
Japan is Myanmar's largest aid donor.
Abe has promised to help support Myanmar's economic and political reforms with both public and private help, including fresh loans for infrastructure building and major development assistance that will support Japanese business interests in the Southeast Asian nation.
Japan had close ties with Myanmar before the junta took power in 1988 and Tokyo suspended grants for major projects. Japan did not impose sanctions on Myanmar in 2003 when the military regime put pro-democracy leader Aung San Suu Kyi under house arrest, unlike the U.S. and other Western countries, though it did scale back most business activity and cut government aid.
Japan's investments in Myanmar still lag behind those of China and India, though that is fast changing. Trading companies Mitsubishi Corp., Marubeni Corp. and Sumitomo Corp. are leading a project to develop the 2,400-hectare (5,900-acre) Thilawa Special Economic Zone, located near Yangon, Japan's biggest investment in Myanmar so far.