Russia’s full-scale invasion of Ukraine and the grinding war in Europe have reinforced the importance of strengthening the nexus between defense and industry to meet the demands of evolving threats and prolonged contingencies. Major powers, including Japan, have demonstrated a renewed commitment to invest in their domestic defense industrial bases as part of their long-term plans to enhance strategic capabilities and defense readiness.
Japan has acted with urgency to revitalize its defense industrial sector. Tokyo had pledged to “advance defense production and technology bases” in its 2022 National Security Strategy, describing them as “defense capabilities themselves.” In October 2023, the Ministry of Defense (MOD) devised the Basic Policy on Enhancing Defense Production and Technology Bases, putting in place a series of financial and security measures to prop up the flagging defense industrial complex. A few months later, the Japanese government announced the easing of restrictions on arms exports. The United States and the European Union respectively released their first ever national defense industrial strategies last year, and Japan is expected to follow suit within this year.
Admittedly, Japan is late to the game. Enduring anti-war sentiments and a decades-old policy of stringent controls on arms exports have caused Japan’s defense industry to languish despite the country’s reputation as a technological powerhouse. While the prioritization of the defense industrial sector is music to the ears of defense companies as well as Japan’s security allies and partners, Japan still has some way to go to realize its ambition of forging a thriving defense industrial base.
Hitting the Reset Button
The 2023 Basic Policy introduced wide-ranging measures to support both prime contractors and smaller suppliers in Japan’s defense industrial ecosystem. Government subsidies will be extended to help offset the costs for expanding production, improving the efficiency of manufacturing processes. Government funds will also help firms enhance cybersecurity, supply chain management, and business succession. Additionally, companies looking to modify specifications of their products for buyers outside the domestic market can now tap into a fund specially set up for this purpose. A system that allows the government to temporarily acquire the facilities and equipment of struggling companies and outsource their operations to other firms was also established.
Plans to bolster Japan’s defense exports were implemented in tandem with efforts to revive the domestic defense sector. In December 2023, two months after the Basic Policy was formulated, the Cabinet revised the guidelines of the Three Principles on Transfer of Defense Equipment and Technology to permit the sale of finished defense products produced under foreign license, including lethal weapons, to the licensing countries. Another round of revision in March 2024 paved the way for Japan to sell the next-generation fighter jets that it is co-developing with Italy and the United Kingdom through the Global Combat Air Program (GCAP) to countries that have concluded defense equipment and technology transfer agreements with Japan, excluding those engaged in active conflicts.
The Japanese government has signaled a clear intent to leverage technological innovations for defense purposes, seen in its push to develop homegrown dual-use technologies. Underscoring a focused shift toward harnessing private-sector technologies for military use, nine technology fields – including artificial intelligence, automation, and information security – have been earmarked as critical areas for defense research and development. The MOD is also looking to establish regular formal dialogues with university academics and research institutions on dual-use technologies – an unprecedented arrangement to foster civilian-military partnerships for Japan’s defense.
Recognizing the need to tap into emerging technologies and to encourage new entrants into the defense industry, the MOD and the Ministry of Economy, Trade and Industry (METI), the two ministries at the forefront of the government’s defense R&D drive, launched the Joint Promotion Committee for Utilizing Startups in the Defense Industry. The Committee works to identify start-ups with promising defense-related technologies that could be incorporated or developed into defense assets. It functions as a matching service to promote collaborations between start-ups and the Japanese Self-Defense Forces.
Not Yet a Game-changer
Japan’s purchases of U.S.-made weapons and services through the Foreign Military Sales (FMS) program occupy a sizable chunk of its defense budget. In fact, due to the yen’s depreciation, Japan had to fork out an additional 123.9 billion yen for its U.S. purchases in fiscal year 2023, as the FMS contracts do not account for currency exchange fluctuations. The growth of the domestic defense industry will widen Japan’s purchase options and reduce the country’s reliance on U.S. equipment. Also, the loosening of arms export controls and the pursuit of joint development projects with like-minded countries are positive steps that will enable Japan to strengthen its ties with diverse defense partners and raise its international profile.
Even so, Japan will have to address several fundamental issues in the quest to build up its defense industrial sector.
While the slew of government support initiatives is surely welcomed by the industry, the relevant agencies will have to iron out guidelines and streamline application and approval processes to avoid administrative lag and confusion. Information sharing and outreach platforms should be established to provide clarity to industry players and aspiring entrants on the range of available schemes and programs. As the leading ministries overseeing the national plans to reinvigorate Japan’s defense industrial base, the MOD and METI must undertake to coordinate and collaborate closely with one another, notwithstanding differences in bureaucratic practices and institutional cultures.
Thorough reviews of current industry practices and regulations must be carried out to weed out collusion and unethical practices between the defense establishment and contractors. A scandal last year revealed that Kawasaki Heavy Industries had accumulated a slush fund of over a billion yen, part of which was used for gifting, wining, and dining submarine crew members from the Maritime Self-Defense Force. Anything less than a firm response to corruption will reinforce negative perceptions of an unequal playing field dominated by big companies and undermine efforts to expand the industry.
Plans to promote closer collaboration and synergy between government, industry, academics, and researchers are laudable and will contribute toward strengthening the defense industrial ecosystem. However, policymakers must contend with prevailing sentiments such as a general aversion to defense companies and a preference for drawing a clear line between academia and defense – all of which stem from long-held anti-war beliefs. It will take time and convincing for mindsets and attitudes to shift.
Certainly Not Game Over
From the perspective of its security allies and partners, Japan’s moves to develop defense capabilities that align more with its geopolitical weight and the revitalization of its defense industrial sector are welcomed developments, perhaps even too long in the making. It would be unrealistic to expect seismic changes overnight. Problems will persist and learning through trial and error will be unavoidable. It remains to be seen if the policy moves by the Japanese government will ultimately spur a “renaissance” in the defense industry. An uphill task lies before Japan’s policymakers, and they will have to approach it with gumption and determination.