If established, the pact would be Japan's first with a country from the Group of Eight major economies.

Japanese Prime Minister Yoshihiko Noda and his Canadian counterpart, Stephen Harper, said they would also seek to boost economic, energy and security relations between the two countries.

"This is a truly historic step that will help create jobs and growth in both countries," Harper told a joint news conference. "The negotiations we are announcing today complement Canada's ambitious trade agenda."

Japan is Canada's fourth-largest export market, and a free trade deal could potentially increase that "by as much as two-thirds," Harper said.

Japan's main exports to Canada are cars, machinery and other industrial products. Its chief imports from Canada are natural resources and agricultural products including soybeans and pork. Both countries are seeking to join the U.S.-led trans-Pacific multilateral trade pact known as TPP. Japan's highly protected farm sector is seen as a main obstacle.

Noda stressed the importance of accelerating private-sector cooperation on the trade of natural gas and other energy resources.

Japan is struggling to secure a stable supply of energy resources due to concerns about a serious power crunch stemming from the nuclear crisis set off by last year's massive earthquake and tsunami.

The March 11, 2011, disasters destroyed power and cooling functions at the Fukushima Dai-ichi nuclear power plant, sending three reactors into meltdown and forcing 100,000 people to relocate.

The crisis also raised public concerns and opposition to restart reactors idled for regular safety checks. Only two of Japan's 54 reactors are currently running, with all of them expected to go offline by the end of April if none are resumed by then.

During the talks Sunday, Japan and Canada also agreed to strengthen cooperation in defense and security in the Asia-Pacific region, Noda said. The two leaders are heading to Seoul to attend this week's Nuclear Security Summit.

"We reaffirmed the importance to tackle outstanding global issues, particularly the issues surrounding North Korea and others in the Asia-Pacific region, as we cooperate as partners," Noda said.

North Korea says it will launch an observation satellite on a long-range rocket next month. Japan shares fear by the U.S. and South Korea that Pyongyang wants to test long-range missiles that could eventually deliver nuclear warheads.