President George Bush, currently on a tour of East Asia, has praised Japan for its role in spreading "democracy and freedom" in the region.
Bush considers Koizumi to be his closest ally in the region
Mr Bush also thanked Japan for its continued support in the US-led invasion of Iraq and Afghanistan.
Mr Bush was speaking in Kyoto after holding talks with Japanese Prime Minister Junichiro Koizumi.
Mr Bush also called upon China to allow its people more freedoms, including the freedom to worship.
The president said he intended to tell China, which he will visit on the eight-day tour, that a free society was in China's interests and the whole Asian region would be better off if democracy spread.
China's leaders, he said, should not fear a free society and he singled out freedom of worship as an issue where China needed to change.
Mr Bush is to expand on that call for political liberalisation in China later on Wednesday in a speech he is due to deliver in Kyoto.
According to excerpts of the speech, released in advance, he will say that freedom is a universal value and point to Taiwan as a democratic success story - a country that has realised that political and economic freedoms go hand in hand.
The text of the speech criticises North Korea and Burma, saying their decision to close the door to freedom, has resulted in backwardness and brutality.
The BBC's Adam Brookes, who is travelling with the president, says similar language has been heard before from Mr Bush and his administration, but this time he is saying it in Asia and just days before he is due to visit China.
Beijing's response to Mr Bush's comments may do much to shape the tone of the president's trip there, our correspondent adds.
Mr Bush's tour of the region will take him to South Korea for a regional economic summit, China and Mongolia.
In Wednesday's talks, Mr Bush and Mr Koizumi discussed bird flu, trade, promoting democracy and free markets.
At their joint news conference Mr Bush congratulated Mr Koizumi on his recent re-election.
He also complimented him on his hard-won economic reforms, which were central to his bid for re-election.
"It makes it easier to trade when the Japanese economy is growing," he said.
Mr Bush said the US would continue to press for a permanent seat for Japan at the UN Security Council.
He also thanked Japan for working alongside the US in urging North Korea to abandon its nuclear programme.
He described Japan as "the pillar of stability and security for the region" and said a "free Japan has helped transform the lives of others in the region".
"The investment you have provided your neighbours helped jump-start many of Asia's economies," he said.
Mr Koizumi underlined the importance of a strong alliance with Washington.
"I think the stronger the Japan-US alliance is, the better Japan's relations with China, South Korea and other Asian nations would be," he said.
A small protest against the invasion of Iraq and Afghanistan was organised ahead of Mr Bush's arrival in Japan's former capital city.
His visit comes soon after two key military agreements between Japan and the US on the relocation of a US base in Okinawa and the hosting of a US nuclear aircraft carrier in Japan for the first time.
After Japan, the US president travels to Pusan, South Korea, to attend the Asia Pacific Economic Co-operation (Apec) summit.