The two-week "Talisman Sabre" exercise in the Northern Territory and Queensland state involves 30,000 personnel from the US and Australia practising operations at sea, in the air and on land.
Some 40 personnel from Japan's army -- the Ground Self-Defense Force (JGSDF) -- will join the American contingent, while more than 500 troops from New Zealand are also involved in the exercise, which concludes on July 21.
"It's a very important relationship and right now we are facing quite significant challenges in many parts of the world but particularly in the Middle East."
The war games, being held for the sixth time, come as China flexes its strategic and economic muscle in the region.
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Beijing has been building artificial islands and facilities in disputed waters in the South China Sea, and has a separate territorial dispute with Japan over the Tokyo-controlled Senkaku islands -- which it calls the Diaoyus -- in the East China Sea.
"It's definitely linked to the notion that China is becoming more assertive and that it seems to be putting money into military capabilities to back up its assertiveness in the South China Sea in particular."
Beijing rejected US criticism of its reclamation works in the South China Sea during the annual Shangri-La Dialogue meeting in May, saying it was just exercising its sovereignty.
America's other allies -- such as Singapore, Malaysia, India, Vietnam and the Philippines -- would be supportive of the exercise, as well as Australia and Japan's activities in the region, Lee added.