Japan’s defense industry set for growth with increased spending, reforms
Marc Prosser
Japan’s recently announced defense spending boost to 2% of gross domestic product by 2027 will bolster national security while also strengthening its defense industry, analysts say.
Over the next five years, Japan plans to spend an additional U.S. $300 billion on defense, with the government of Prime Minister Fumio Kishida, pictured, earmarking funding for areas such as cyber defense, space-related projects, munitions depots and missile systems. Japan has enlisted Mitsubishi Heavy Industries (MHI) to lead the development of several missile projects.
The spending increase, which comes amid growing concern in Tokyo and elsewhere over North Korea’s nuclear and missile programs and the People’s Republic of China’s (PRC) destabilizing activities in the Taiwan Strait, will deliver a welcome boost to MHI and other Japanese defense manufacturers.
A Japanese government ban on arms transfers to foreign markets, eased in 2014 under certain conditions, has limited the production scale and export opportunities for such companies, reducing their potential profit margins on defense contracts. As a result, companies including Mitsui, Sumitomo Heavy Industries and Komatsu stopped producing machine guns, armored personnel carriers, ships and other equipment.
In April 2022, Japan’s most prominent business lobby, the Keidanren, warned of a domestic defense industry crisis. “We must do something to sustain the industry because companies are withdrawing in the last five years,” Naohiko Abe, head of MHI’s integrated defense and space systems, told the Financial Times newspaper.
Bonji Ohara, a senior fellow at the Sasakawa Peace Foundation, a Japan-based think tank, told FORUM the industry needs fundamental reform.
“Today, Japanese defense companies essentially only have one customer — the Japanese state,” said Ohara, who previously served as a Japanese naval attache in the PRC and commanding officer of the Japan Maritime Self-Defense Forces’ 21st Fleet Air Squadron. “Without addressing this issue, change and growth will remain challenging.”
Timothy Langley, who was the first foreigner to work in the Japanese Diet under Taro Nakayama who later became Foreign Minister, said Japan is addressing the challenges facing its defense industry.
One strategy is international collaboration. For example, MHI is developing a next-generation fighter aircraft with the United Kingdom’s BAE Systems and Italian multinational Leonardo.
“International development projects with allies can cut costs and development times,” Langley, CEO of the Tokyo-based government relations firm Langley Esquire, told FORUM. “It also presents Japanese companies with new opportunities to sell equipment to foreign markets.”
Another focus area is bridging the gap between Japan’s private and public defense sectors, particularly for startups. For example, Japan launched a U.S. $940 million fund offering loans and investments for space startups in 2018. At the time, there were fewer than 20 such businesses nationwide, although that number is growing. Japan’s 2023 budget also includes U.S. $160 million for “bridge research” into how private research can be used for military purposes, up about U.S. $7 million from fiscal year 2022.
Furthermore, Japan is looking to emulate the United States Defense Department’s Defense Advanced Research Projects Agency by launching a defense research institute to fund civilian projects in artificial intelligence, quantum computing and drone technology.
Japan’s Defense Ministry also wants to study the Pentagon’s Defense Innovation Unit, which collaborates with tech companies in California’s Silicon Valley.
IMAGE CREDIT: THE ASSOCIATED PRESS
