The agreement was reached between Prime Minister Yoshihiko Noda and Timor Leste Prime Minister Xanana Gusmao during talks Monday in Tokyo.
At a news conference before the meeting, Gusmao thanked Japan for the financial assistance, noting the funds will be used to upgrade a road connecting Dili and the second-largest city, Baucau.
The "high-quality infrastructure," he said, will "benefit our people for many decades to come. We are very grateful."
Saturday's presidential election in Timor Leste was also discussed during the meeting; with Noda noting he heard the voting was peaceful, which he said is a "sign of democracy." (*/Kyodo)