It is being seen as a challenge to the protectionism championed by US President Donald Trump.
Meanwhile, cars are one of Japan#8217;s biggest exports to the 27-nation bloc.
It must now be ratified by EU members and the European Parliament.
Last year, the EU and Canada struck a major trade deal as EU-US trade talks faltered.
The European Union and Japan have agreed terms for a free trade deal set to create the world#8217;s biggest open economic area.
#8220;It sends a clear signal to the world that the EU and Japan are committed to keeping the world economy working on the basis of free, open and fair markets with clear and transparent rules fully respecting and enhancing our values, fighting the temptation of protectionism,#8221; they said.
The deal #8211; the largest struck by the EU #8211; is expected to liberalise almost all trade between the bloc and the world#8217;s third-largest economy.