Japan’s global defense business may be on the cusp of a big breakout
SAN ANTONIO, ZAMBALES, PHILIPPINES – APRIL 28: A Japanese Self-Defense Force personnel carries a Japanese national flag in front of missile systems during an Integrated Air and Missile Defense (IAMD) exercise as part of the ongoing multinational Balikatan (Shoulder-to-Shoulder) exercise at a naval base in San Antonio, Zambales, Philippines, April 28, 2026. The deployment of troops and missile systems from the United States and Japan comes at a time when tensions are rising in the disputed South China Sea and Taiwan Strait, China’s People’s Liberation Army has stepped up its military activities in the water and Beijing has condemned Tokyo’s strengthened defense cooperation with the Philippines. (Photo: Daniel Ceng/Anadolu via Getty Images)
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Japan’s easing of decades-old restrictions on arms exports creates a huge opportunity for the country’s defense industry in an increasingly arms-hungry world.
Global conditions look positive. On 27 April SIPRI reported: Global military spending reaches record $2.89 trillion in 2025, the 11th consecutive year of increase.
Countries are “desperate” to acquire weapons such as air defense missiles, artillery shells and armored vehicles, areas where Japan Inc. can expand its market share in the international defense economy, Hirohito Ogi, a senior research fellow at the Tokyo-based Institute of Geoeconomics, told CNBC in an interview.
South Korea may offer a template; defense companies there roaring few years As the Russia-Ukraine war drags on, they are taking advantage of this to produce weapons that are cheaper, faster and of comparable quality to US weapons, and the Iran war is likely to increase demand even further.
Moreover, traditional US partners are now seeking alternative defense suppliers due to rising demand and doubts about American alliance commitments.
Stephen Nagy, professor of politics and international studies at Tokyo International Christian University, said Japanese engineering was “cutting edge” and the “crown jewel” would be the next-generation Global Combat Air Program fighter jet developed with Britain and Italy.
There will be a new warplane change as reported Eurofighter Typhoon in the UK and Italy and Mitsubishi F-2 fighter jet in Japan.
Export areas
Japan’s near-term opportunities are likely to be concentrated in areas where the country already has significant technological strength.
The country will initially focus heavily on maritime domain awareness and air defense, such as “advanced radar systems, patrol ships and co-produced interceptor missiles,” Nagy said.
in April, Australia signs contract for first three general purpose frigates to be built by Mitsubishi Heavy Industries and is based on the upgraded Japanese Mogami class design.
With Indonesia showing interest in high-speed patrol boats, foreign interest in Japanese defense systems is also increasing.
Philippines in discussions For possible transfer of defense equipment from Japan and New Zealand reportedly wants Upgraded Mogami-class frigates ordered by the Australians.
challenges
But challenges remain. ICU’s Nagy said Japanese firms currently lack international marketing experience and cost competitiveness.
“Rather than immediately dominating the global arms market, they will likely establish specialized, high-tech fields among trusted allied partners,” he added.
An earlier loosening of export restrictions in 2014 produced lackluster results, according to IOG’s Ogi, a former official of Japan’s Ministry of Defense. He said many people attribute this outcome to Japan’s inexperience in promoting defense products in the international market.
The International Institute for Strategic Studies reported In May, it was reported that finished product exports since 2014 consisted of only three fixed air surveillance radars and one mobile air surveillance radar. Philippines Before the Australian shipbuilding agreement.
But the biggest constraint may be production capabilities. For decades, Japanese defense manufacturers have mostly served a single customer: the Self-Defense Forces.
Although Tokyo increased its defense spending, incentives to establish export marketing teams, reduce unit costs, or invest in spare production capacity were limited.
Japan itself also recorded a 9.7% increase in defense spending, reaching $62.2 billion in 2025; this amounts to 1.4% of GDP; This is the highest share since 1958.
The country’s ministry of economy, trade and industry said: February report It was stated that the defense sector is less attractive than the civilian sector due to low profit margins and limited growth potential. The report also stated that this led to companies withdrawing from the industry.
Still, according to IOG’s Ogi, lifting the arms export ban would increase Japanese production capacity by encouraging companies to produce weapons on a large scale in peacetime.
This would also strengthen Japan’s war readiness, he said, because defense companies would not have to increase production so drastically if needed during the war.
In terms of stocks, ICU’s Nagy said traditional domestic heavyweights stand to gain the most from lifting the ban on lethal weapons exports. While Mitsubishi Heavy Industries is the “mainstay” of the industry, Kawasaki Heavy Industries, IHI Corporation and Mitsubishi Electric have the necessary scale for international supply.
But even before the ban on lethal weapons exports was lifted, other analysts were optimistic about the sector. A Wisdomtree report published in November stated that Japan was “preparing to enter the export market in earnest.”
“For investors who believe in themes that have been converging for decades, Asian Defense is not a trade. It is the frontier of defense investments for the next 20 years,” the report said.
