Japan is one of two finalists in the competition to build Australia’s next general-purpose frigates, in what could potentially be one of the biggest contracts ever for the country’s fledgling defense industry.

The upgraded Mogami class from Mitsubishi Heavy Industries and the Meko A-200 from Germany’s Thyssenkrupp Marine Systems have been shortlisted over Spanish and South Korean contenders for the next round of a multibillion-dollar program to replace the Royal Australian Navy’s aging Anzac-class warships, sources said.

Several Australian media confirmed the decision by Australia’s National Security Committee, adding that final selection is expected next year, although it is unclear whether this will happen before or after a general election that is due by May.

Should Japan win the contract, it would not only mark a major breakthrough for the country’s defense industry but also substantially deepen military and industrial cooperation between Tokyo and Canberra at a time when the quasi-allies are gearing up to expand ties across the board amid shared security concerns.

The Mogami frigates, a first variant of which is already in service with the Maritime Self-Defense Force, had been identified in a February report by the Australian government as one of up to five “exemplars to form the basis of a selection process.” Also identified at the time were South Korea’s Daegu-class FFX Batch II and III and Spain’s Navantia ALFA 3000.

The Australian Navy is seeking between seven and 11 general-purpose frigates optimized for undersea warfare under “Project Sea 3000.”

The move is also part of Canberra’s efforts to more than double the size of the country’s surface combatant fleet to address potential threats farther away from national borders.

Among the broad requirements are the vessels’ ability to carry a combat helicopter, deploy lightweight torpedoes and feature air defenses as well as maritime and land strike capabilities, while also maintaining smaller crews than the Anzac frigates it commissioned in the 1990s and early 2000s.

To get the frigates as quickly as possible — the first one needs to be in the water by 2029 — the three initial vessels would be built overseas in the yard of the designer, while manufacturing of the remaining ships would transition to Henderson in Western Australia.

Project Sea 3000 is budgeted to cost between 7 billion (about $4.66 billion) and 11 billion Australian dollars over the next decade, although final figures have yet to be released.

“This is a major project with significant funding and would be a major export opportunity for the Japanese industry,” said Peter Dean, a professor at the University of Sydney’s United States Studies Centre.

That said, Japan faces formidable competition from Germany, which has more experience in defense sales and program management with other countries.

“The Germans are definitely the better-known provider,” said Euan Graham, senior analyst at the Australian Strategic Policy Institute, noting that Australia’s relationship with Germany on naval surface combatants goes back to the Anzac frigates. The Meko A-200 is an evolution of that Anzac class, meaning that its selection would ensure continuity.

Graham also noted that the weapon systems used by the Germans would be easier to integrate for the Australians, as they'd already be up to U.S. and NATO standards.

“From that point of view, Germany would be a more tried and tested commercial exporter,” he said.

Moreover, Australian media have reported that the Meko A-200 is likely to be “considerably cheaper than Japan’s initial proposed price,” although this has yet to be confirmed.

Still, the multimission Mogami frigates are highly capable warships, featuring cutting-edge tech and capabilities.

These vessels, which are difficult to detect by radar thanks to their stealthy hull shape, can be operated with half as many crew members as general-purpose destroyers, all the while fulfilling similar roles. They can be deployed on a variety of missions, including warning and surveillance, anti-air, anti-surface and anti-submarine warfare, as well as minesweeping operations.

Analysts say the final decision will be as much about the warships’ capabilities as about the partnership proposal, including aspects such as contracting, cost, build speed, intellectual property transfer and a genuine program for the vessels’ co-development, delivery, sustainment and maintenance.

But there is another important factor that could tilt the balance in the Mogami’s favor: geopolitics, or rather Canberra and Tokyo’s willingness to further deepen military and defense-industrial ties.

The partners are not only boosting joint training and interoperability, but also cooperating on defense-research projects and putting consulting mechanisms in place to handle contingencies while doubling down on their alliance with Washington and other regional partnerships.

“I believe Japan’s bid would offer more strategic advantages,” Dean said.

Graham had a similar view, noting that if all the other factors are equal, then the geopolitical context will “add extra weight.”

“And among all the countries bidding, Japan has the closest government-to-government, defense and security relationship with Australia,” he said.