Japan has agreed to write off more than $3.7bn (£2.29bn) of debt owed by Burma and to resume development aid.
The accord came at talks in Tokyo between the countries' leaders. They also agreed to plan a special economic zone near Rangoon.
Burma has begun political and economic reforms in the past year, since a civilian-led government ended nearly 50 years of direct military rule.
Burma is rich in natural resources but its people remain poor.
President Thein Sein is the first Burmese leader to visit Japan for almost three decades. He has introduced reforms since coming to power in November 2010.
'Last frontier market'
The announcement of the debt write-off and resumption of aid was made jointly by Thein Sein and Japanese Prime Minister Yoshihiko Noda after talks.
"At a time when Myanmar's [Burma's] democratisation is reaching a key stage, Japan is declaring to further support its efforts to reform and to continue bolstering assistance," Mr Noda told a news conference.
The BBC's Roland Buerk in Tokyo says the joint plans to be drawn up for the special economic zone in Burma could give Japanese firms a head start in winning business in what is seen as one of Asia's last frontier markets.
Thein Sein's visit comes as EU nations prepare to ease sanctions. An announcement is expected on Monday, diplomatic sources say.
They predict an end to a travel ban and asset freeze for many officials, with only the arms embargo to remain in place.
The US and Australia have already eased some sanctions on Burma following the political reforms.
Earlier this month, pro-democracy leader Aung San Suu Kyi's National League for Democracy party won 43 out of the 45 seats it contested in by-elections, with Ms Suu Kyi herself winning a seat.
Opposition MPs are to take their seats in parliament on Monday, but a row over the oath they swear could delay this.