Yesterday the ABC's Chris Uhlmann delivered the scoop that federal cabinet had all but rejected Japan's bid to build 12 new submarines for the Royal Australian Navy. The Australian's Brendan Nicholson reinforced the story today, and last weekend Hamish Mcdonald had a piece along similar lines, though without the cabinet leak to back it up. The Government has not denied the story, and it is set to make an official announcement next week.

It's interesting to see that Nicholson and McDonald emphasise the capability of the proposed Japanese submarine as the decisive consideration, while Uhlmann talks about a lack of 'enthusiasm in the Japanese bureaucracy for the deal'.

If these stories are confirmed, get ready for an extended bout of introspection (here on The Interpreter and elsewhere) about what this all means for Australia's relationship with Japan, and for Japan's place in the world.

On the question of Japan-Australia relations, I noted when I was in Tokyo last month that expectations there were high, and that some officials warned me about the damage to Japan-Australia relations should Japan not win the contract. In part, this is Australia's fault. The Abbott Government encouraged the idea that Japan could supply Australia with submarines, and from Tokyo's perspective it now it looks like the rug has been pulled out from under it.

On the issue of Japan's place in the world, if this decision is confirmed it will clearly have implications for Japan's foreign and security policy. Obviously it would be a significant setback to closer Japan-Australia ties, but more broadly it also affects the Abe Administration's ambitions to make Japan a more 'normal' country with a less restrictive security posture.

Japan's normalisation as a security player has various elements, such as amending the interpretation of the constitution, broadening the terms on which Japan works with allies, and of course weapons sales. On each of those issues, Japan has to overcome its own political culture. This was evident in the way Mitsubishi Heavy Industry approached its bid for the Australian contract. Many analysts have pointed out that Japan's bid for the Australian submarine contract started slowly and that its marketing efforts were decidedly inferior to its French and German competitors in the early months of the competitive evaluation process. Japanese officials I talked to openly acknowledged this point.

But they also pointed out that Japan had two things going against it. The first was an experience deficit with its competitors (both the French and Germans have long histories as arms merchants). But there was also a cultural barrier to overcome. For instance, the notion that Japan, steeped in its post-World War II tradition of pacifism and minimal defence, would place advertisements in the media and billboards around Canberra Airport boasting about the quality of its armaments was utterly foreign. A contract with a friendly, democratic, stable country like Australia would have been the perfect way for Japan to overcome these cultural barriers. The question now is whether other opportunities will arise which also fit those criteria.

One other angle here is that Japan has now, in short order, failed to win two high profile contracts in this neighbourhood, both of which it had good reason to expect to win. The other, of course, is the deal to build high-speed rail in Indonesia, which China won with a last-minute Lyle Lanley-style pitch to build the train line without an Indonesian government financial guarantee.

Morale in Tokyo must be low. The question is whether it will encourage the foreign policy establishment to redouble its efforts, or push Japan back into its shell.