Australia and Japan should "seal the deal" on a free trade agreement (FTA), Prime Minister Julia Gillard said Monday, adding no trade pact would be more natural or logical for the country.

"Japan is a critically important economic partner for Australia and will remain so in the future," Gillard told a business conference in Sydney, Australian news agency AAP reported.

"But in a dynamic and changing region, it's time to take the next step. It's time to seal the deal on a free trade agreement."

Australia and Japan began negotiating an FTA in April 2007 but talks were stalled in 2011 by the earthquake and tsunami disaster which hit the Asian nation.

Gillard said she had spoken recently to her Japanese counterpart Prime Minister Yoshihiko Noda on the issue and was "encouraged by his response".

"I am only too deeply aware that for 2011 Japan's focus was overwhelmingly on disaster recovery," Gillard said.

"But in 2012 we have seen momentum gathering again in our FTA negotiations."

Japan is a major trading partner with Australia, with trade more than doubling from Aus$24 billion (US$24.4 billion) in 2001 to Aus$52 billion last year, Gillard said.

"Our FTA negotiations have come a long way in five years: only a few hurdles remain," Gillard said.

"They are important hurdles, but they can be overcome with a concerted political will on both sides."

At the end of 2011, the total stock of investment in Australia from Japan was more than Aus$123 billion, with recent investments in a liquefied natural gas project and a Tasmanian milk processor.

Australia has several bilateral FTA agreements, including with Singapore, Thailand and the United States. Negotiations are underway with China and South Korea as well as Japan.