The security environment around Japan is becoming increasingly complex and uncertain. In response, Japan is working to build its defense capability across all domains of warfare, including space, cyberspace, and the electromagnetic spectrum. The aim is to develop the JSDF (Japan Self-Defense Force) into a more capable and flexible institution able to engage in a broader range of sustained defense-related activities.
Japan has a substantial domestic defence industrial base with world leading technological capabilities within wider industry. However, in recent years, the Japanese Ministry of Defence has bought increasing numbers of advanced defence systems from the US, increasing the proportion of systems purchased under the US Foreign Military Sales programs from just over 5% to around 25% of the equipment budget. Japanese industry is not excluded from participation in these FMS programs, but their role is necessarily as part of the supply chain rather than in the lead.
There is a government led desire to build the domestic defence industrial base to make it internationally competitive and export capable. The strategy to achieve this is not yet clear but at some stage it will increase the potential for overseas defence companies with world leading capability to build new partnerships with Japanese industry.
Foreign defense companies interested in the Japan defense market must understand that success here requires patience and a keen awareness of the many complexities and challenges of operating in Japan, from both the cultural perspective and from a defence procurement system that is different from other countries. Companies that take the time to develop a deep understanding of Japan’s capability needs and are willing to partner with Japan’s domestic industry and local trading houses will increase their chances of successful market entry.
ISIC Japan is working with Japanese and foreign industry associations to support and expand interaction with Japanese defense companies. The main goals of ISIC Japan are to promote business-to-business collaboration and the integration of local contactors with the global supply chain to strengthen both Japanese and allied industrial defense capabilities.
Japan’s defense budget has been gradually increasing in recent years. In March 2017, former Prime Minister Shinzo Abe announced that Japan would end the policy that capped defense spending at one percent of GDP (Gross Domestic Product). In 2020, Japan’s defense budget was $49 billion US dollars. For the fiscal year of 2021, the Japan’s Ministry of Defense (MOD) is applying for a \5.49 trillion-yen budget (around $52 billion). Generally, defense spending has been around 1% of GDP (which is substantial) for most of the last 50 years. However, this does not include costs such as pensions which are taken into account by other countries and it is generally accepted that, using NATO methodology for example, defense spending is nearer 1.2% of GDP or more. Furthermore, occasional supplementary budgets are not included in this calculation, so the overall spend remains substantial.
A comprehensive overview of Japan’s budget for FY2023 can be found here and the previous budget for FY2022 can be found here.
The strategic drivers for Japan’s defense spending are articulated in three official documents, the National Security Strategy (NSS), and the National Defense Strategy (NDS) (formerly, National Defense Program Guideline (NDPG)) which is supported by Defense Buildup Program ( (formerly, Medium Term Defense Program (MTDP)) outlines that project equipment procurement plans for the following 10 years. The NSS provides the guiding principles of Japan’s security and its national interests and objectives domestically and abroad. The NDS outlines the policies and programs designed to achieve the NSS; the DBP is a ten-year shopping list that supports the NDS.
Updates to these core documents used to be few and far between. After the JSDF was established in 1954, Japan made only two updates up until the end of the Cold War. After the Cold War, revisions became more frequent and updates were made approximately every ten years. However, the recent developments as well as the uncertainty surrounding Japan’s security outlook has motivated more frequent changes. Currently, there is a general 5-year pattern of major reassessment.
The latest version of these documents was published in December 2022. The NSS pledged to build a robust and sustainable defense industry. Facing the evolution of characters of warfare, Japan sees defense production and technology bases as “indispensable foundation”. The issues it intends to address include: profit margin calculation system; market expansion; optimization of Foreign Military Sales (FMS); information security; supply chain risk; and protection of sensitive technologies aligning with economic security policies.
Japan sets out the following six technologies and programs that it is looking to invest in: (1) Stand-Off Defense Capabilities; (2) Capabilities to Respond to HGVs, etc.; (3) Capabilities to Respond to Drones and Swarm Attacks; (4) Unmanned Assets; (5) Measures for Nex-Generation Fighter Aircraft; (Reinforcement of Other Deterrence and Response Capabilities (R&D on future railgun, jamming device, AI, next generation signal intelligence aircraft, remote-controlled compact mines, and hypersonic surface -to-air guided missiles).
On a related note, the Three Principles on Transfer of Defense Equipment and Technology, and its Implementation Guidelines are currently under revision in a bid to improve the system and institutional environments in which necessary transfer of defense equipment can be smoothly carried out. Furthermore, Japan has launched Official Security Assistance (OSA) in 2023 – a new cooperation framework intended to provide equipment, supply, and assistance for infrastructure development for the armed forces of like-minded countries.
Japan’s defense expenditure puts it roughly on a par, in expenditure terms, with major European powers, particularly the UK, France and Germany. As of the end of March, 2022, the JSDF has 230,754 active-duty personnel and around 50,000 in reserve. It consists of three service branches: ground, maritime, air. It is notable that while other forces around the world have reduced personnel numbers in recent years by around 20%, predominantly to reflect greater automation of defense systems, Japan, like the United States, has roughly maintained its military numbers.
The JMSDF operates a modern fleet of approximately 154 ships and 346 aircraft, including 4 helicopter carriers (SSH), AEGIS equipped ballistic missile defense destroyers and the world’s second largest fleet of P-3C Orion maritime patrol aircraft, which is being replaced by the indigenous P-1 aircraft.
The JMSDF has recently launched a new class of diesel-electric attack submarines named the Taigei-class. All submarines are built in adjacent yards by Mitsubishi Heavy Industries (MHI) and Kawasaki Heavy Industries. The Taigei is a 3,000-ton diesel-electric attack submarine measuring 84m (275feet, 7 inches). The Taigei-class, attack submarine is Japan’s third submarine equipped with lithium-ion batteries which are capable of longer endurance at high speeds compared to lead-acid batteries. Japan is the first and only country known to operate submarines using only lithium-ion batteries to supplement diesel propulsion on the surface.
Japan is also planning to upgrade the two larger helicopter carriers to operate the F-35B STOVL (Short Take-Off & Landing) stealth fighter.
For more information see the official JMSDF English homepage here.
The JGSDF currently has 9 active-duty divisions (1 armored, 8 infantry), and 6 active Brigades. In March 2018, Japan established the ‘Amphibious Rapid Deployment Brigade,’ to protect Japan’s Island territories in the South West, including the Ryukyu island chain and the Senkaku Islands. There is a territorial dispute with both China and Taiwan over the Senkaku Islands.
In the FY2020 budget Japan planned to expand its Cyber Defense Group from approx. 220 personnel to approx. 290. The FY2020 budget also outlined the establishment of a “Cyber Protection Unit” as part of the GSDF. The new Electronic Warfare unit will be established as part of the GSDF.
For more information see the official JGSDF English homepage click here.
The JASDF operates around 740 aircraft, with approximately 330 of these being combat aircraft (F-15 and F-2 (based on the US F-16) and F-35A). Japan plans to purchase a total of 147 F-35s, 105 F-35As, and 42 F-35 STOVLs (Short Take-Off & Vertical Landing) also known as F-35Bs.
Japan’s first four F-35s were built by Lockheed Martin’s in Fort Worth Texas. However, Mitsubishi Heavy Industries (MHI) is assembling F-35As from internationally manufactured parts at its Final-Assembly and Check Out (FACO) facility in Komaki, Nagoya (Aichi prefecture).
MHI has also won the role of prime contractor in the development of Japan’s new F-X Stealth Fighter program. Japan hopes to develop F-X in collaboration with major foreign defense companies. Lockheed Martin was selected as MHI’s Integration Support Partner in December 2020, but this is an early and preliminary partnership, with longer term international participation currently unclear. Japan plans to complete development of the F-X by around 2030 and have it operational by 2035 as a replacement for the F-2.
For more information see the official JASDF English homepage here.
Until 2016 Japan’s defense industrial strategy prioritized domestic production of defense equipment with the options of licensed production, predominantly from the US, together with FMS as secondary sources of supply. A new strategy has added international cooperative development to the options available
Defense companies of allied countries with experience in supplying proven, cutting-edge technologies, products or services to their own and other Western militaries are encouraged to consider Japan as a potential market, although there will be a preference for companies to work closely with Japan’s defense companies, rather than to supply directly. Success in Japan requires patience, thorough research of Japan’s capability requirements, investment in local partnerships and representation, and timely provision of accurate and tailored information in Japanese to end users and stakeholders.
Companies looking to address the Japanese market are advised to spend time creating a focused strategy on Japan’s requirements and identify the appropriate fit for their product offerings. The next step is to identify a market entry strategy with the appropriate mix of potential partners, agents (traditionally a trading house) and representation.
There are three core stakeholders of the Japanese defense market; the Japanese government, local defense industry, and trading houses that often represent foreign suppliers.
Japan’s Ministry of Defense (MOD) was established in 2007, replacing the Japan Defence Agency (JDA) that was created in 1954. . It is currently headed by Defense Minister Yasukazu HAMADA (浜田靖一) who took over the post in August 2022. The Defense Minister is a member of cabinet and reports directly to the Prime Minister, Fumio KISHIDA (岸田文雄) . The organizational chart of the MOD is available here.
The JSDF is headed by the Chief of Joint Staff and respective Chiefs of Staff for each branch of the JSDF, Ground, Maritime and Air. The chiefs are all four-star officers and are supported by service specific staff offices that are co-located in the Ministry of Defense Headquarters in Ichigaya, Tokyo. The current Chief of Staff of the Joint Staff and most senior JSDF officer is General Yoshihide YOSHIDA (吉田圭秀) since March 2023. For more information see the official Joint Staff English homepage here.
The civilian bureaucracy of the JMOD, known as the Internal Bureau, exercises policy control and influence over future-capability investment decisions. In addition, there are various elements of the JMOD and higher government organizations that are stakeholders in future force design and capability requirement decisions.
ATLA, or the Acquisition, Technology and Logistics Agency, is responsible for the delivery of all acquisition and procurement programs as well as defense R&D. It was established in October 2015, merging a number of departments from across the Ministry, and is part of the JMOD. As an organization it is still developing and has yet to demonstrate major success in either a domestic defense programme or in its mandate to increase Japanese defense exports. Its personnel are generally on secondment from the civilian Internal Bureau of the JMOD and the three SDF. As yet, there is no evidence of an emerging specialist acquisition cadre.
ATLA cooperates with various R&D organizations within Japan and overseas to apply advanced dual-use technologies (technologies that have both civilian and military applications) and enhance technical capabilities through projects that reflect the operational needs of the JSDF.
ATLA has ambitious plans to master aviation and defense tech over the next 10-15 years with projects such as the GCAP (Global Combat Air Program) in collaboration with the UK and Italy, future unmanned aerial vehicle, hypersonic weapons and missile guidance programs, network electronic warfare systems (NEWS) and variable depth sonar systems to name a few
For more information see the official ATLA English homepage here.
The Ministry of Foreign Affairs (MOFA) – which wields significant influence in international programs, especially in its capacity as the sole ministry authorized to sign formal agreements.
The Ministry of Economy Trade and Industry (METI) – which provides approval and interpretation of policy for Japanese defense exports.
The Ministry for Internal Affairs and Communications (MIC) which judges and grants ‘qualification’ to foreign firms wishing to directly and formally bid for contracts with JMOD.
The Ministry of Finance (MOF), to which the JMOD must submit budget requests along with justifications for purchases.
The Japan Aerospace Exploration Agency (JAXA) is the lead for national space development.
The Top 10 largest Ministry of Defense contractors in FY2021, by monetary size of contract are:
| Rank | Supplier | Contract number | US (millions) (approx.) | % of Total |
|---|---|---|---|---|
|
1 |
157 |
459.1 |
25.5% |
|
|
2 |
99 |
207.1 |
11.5% |
|
|
3 |
93 |
96.6 |
5.4% |
|
|
4 |
Japan Electric |
166 |
90.0 |
5.0% |
|
5 |
141 |
75.7 |
4.2% |
|
|
6 |
62 |
66.4 |
3.7% |
|
|
7 |
IHI |
34 |
57.5 |
3.2% |
|
8 |
SUBARU |
13 |
41.7 |
2.3% |
|
9 |
Hitachi |
66 |
34.2 |
1.9% |
|
10 |
Oki Electric Industry |
54 |
27.7 |
1.5% |
Source: Overview of Central Procurement (in Japanese), ATLA
These figures show the share of the Japanese procurement budget but do not make clear that there are no specialized defense companies in Japan. MHI is by far the largest participant in the defense market but this only accounts for around 15% (“Aircraft, Defense & Space” segment) of MHI activity. This pattern is repeated across all major Japanese companies involved in defense.
There is also considerable fragmentation with multiple companies involved in producing the same products. For example, there are more than 5 companies producing major defense electronics systems, 3 companies producing military helicopters, and 4 companies involved in naval shipbuilding. There has as yet been no consolidation to match that seen in the US and Europe in the 1990s and 2000s.
Japan’s defense industry was effectively prohibited from exporting since the mid-1960s under the “Three Principles on Arms Exports” policy. Thus, the defense industry has predominantly focused on the MOD as its customer. Although new rules on transfer of defense equipment were published in 2014, there has been only one case in the past decade, in which defense equipment was exported abroad. In an attempt to break through such situation, Japan is now revising the said rules on export of defense equipment. The focuses of discussion include whether equipment/technology with lethality should be allowed to export or not.
Traditionally there has been a reliance on indigenous programs and licensed production. Few new licensed programs have been adopted in recent years and there is a limited number of indigenous programs. Smaller suppliers have been leaving the market, while major contractors have begun the process of consolidation unthinkable to earlier generations. For example, the naval shipbuilding operation of Mitsui E&S will transfer to MHI in late 2021. Similarly, Komatsu suspended development of light armored vehicle (LAV) in 2019.
Companies new to Japan’s defense market may choose to engage a Japanese trading house with a reputation for representing foreign firms to the Japanese Ministry of Defense (MOD). Japanese trading houses in the defense sector include, but are not limited to, Itochu, Marubeni, Mitsubishi Corporation, Mitsui & Co, Sojitz, and Sumitomo Corporation. These are major corporations for whom defense is but one line of business.
There are also many smaller trading houses, some with excellent reputations and some which may require caution. Choosing a trading house as the means of market entry requires a carefully constructed strategy which balances the relevant costs and benefits against partnership with a local manufacturer and understands the capacity of the trading house.
Previously, engagement of an appropriate trading house was seen as an essential prerequisite for entering the Japanese defense market. This reflected the requirement for Japanese government contracts to be with local entities. Most overseas defense companies did not set up local companies, although a small number have done so in the last few years.
Given the appetite for Japanese export and two-way trade, there is an increasing emphasis to be placed now on working with Japanese partner manufacturing companies, to identify appropriate benefits in Japan and elsewhere and this may limit the utility of a trading house.
ISIC Japan is a non-profit corporation registered in Tokyo to promote business to business collaboration between Japanese Industry and global defense companies of partner countries. ISIC Japan is made up of a select group of Japanese and foreign, government and defense-industry experts that have extensive experience working with JMOD and defense industry companies in Japan.
Our purpose is to foster relationships between stakeholders – corporates, government and NGOs, military and academia with a focus on SMEs with limited budgets and experience. The coronavirus pandemic has highlighted weaknesses in global supply chains and industry. Defense supply chains have not been spared. We hope you will join us in helping Japan to rise up and become a true global defense industry partner.
If we work together, we can ensure mutual technical and logistical advantage in the face of increasingly capable competitors.
