Japanese Prime Minister Taro Aso inked the deal ahead of this year's Asia-Pacific Economic Cooperation (Apec) summit in Peru, which has also used the occasion to seal a trade pact with China.

The accord with Japan aims to create a better environment for investment in each country by getting rid of unnecessary red tape and giving investors most-favoured trading nation status, Japanese officials said.

Japan started negotiations on the deal in March. It is Japan's second such treaty with a South American country after a broader free-trade accord - which includes sharp tariff reductions - with Chile.

During talks, Mr Aso told Mr Garcia that his government would 'positively' consider starting negotiations with Peru on a broader free-trade agreement, the Japanese official said.

Mr Garcia replied: 'I hope to begin negotiations when I visit Japan in February.'

Japan and China have increasingly been seeking natural resources in emerging economies such as Peru, which logged nine per cent growth last year on the back of its booming mining sector.

Chinese President Hu Jintao on Wednesday finalised negotations on a free trade deal with Peru, which also agreed on Friday to start talks on a trade pact with South Korea.

Mr Garcia has sought to improve relations with Japan, which were tense for years due to Japan's refusal to extradite former Peruvian president Alberto Fujimori.

Fujimori, who holds Japanese nationality because of his ancestry, fled to Tokyo in 2000 and resigned the presidency by fax as he faced with a corruption scandal. He was arrested in Chile in 2005 and extradited to Peru. -- AFP