Japan on Thursday announced $157 million in financial assistance for Nepal to build a 2.5-km tunnel, the country's first, along a key highway connecting Kathmandu to the rest of the country.

Japanese Senior Vice Foreign Minister Nobuo Kishi announced the soft loan assistance at a function held in Kathmandu to mark the 60th anniversary of the establishment of diplomatic ties between the two countries.

The tunnel will significantly ease traffic congestion at Thankot, the biggest entry point to the capital, and also shorten the travel distance by 4 km.

Nepalese Foreign Minister Prakash Sharan Mahat lauded Japan's cooperation in infrastructure, agriculture, human resource development, education reform, and aviation safety in Nepal.

"Japan has always remained one of the largest and reliable development partners of Nepal," Mahat said.

On Wednesday, Japan announced grant assistance worth $14 million for improving aviation safety at major airports in Nepal and another $3 million grant assistance for the education sector.