‘Security for the future’: Inside Japan’s multi-trillion-yen push to strengthen its defence industry

TOKYO – Faced with a rapidly shifting global order and assessments of heightened threat from its neighbours China, North Korea and Russia, Japan has concluded that it is essential to build its own defence industrial shield to guarantee its security.

In its annual white paper released on Aug 4, Japan’s Defence Ministry cited strategic threats and the lessons of modern warfare – specifically how Ukraine is defending itself against a much larger adversary – as key reasons why it is investing trillions of yen to transform a domestic defence sector long treated as an economic afterthought into a core engine of national power.

The document comes two weeks after Prime Minister Sanae Takaichi’s Cabinet approved its annual honebuto (literally “big-boned”, or “solid”) economic policy blueprint, which explicitly calls for a “transformation of defence capabilities within five years”. Achieving this requires more than just dialling up defence spending beyond the current 2 per cent of gross domestic product.

While neither document set new explicit spending targets, the honebuto pointedly referenced goals set by fellow US security allies, including NATO (3.5 per cent by 2035), South Korea (3.5 per cent as soon as possible) and Australia (3 per cent by 2033). 

“Japan must first and foremost bolster its diplomatic power, proactively strengthen its defence power, and at the same time organically integrate its diplomatic, defence, economic, technological, intelligence and human resource capabilities,” the blueprint said. 

Crucial to this vision is building a globally competitive defence sector that can position Japan as a vital player in international supply chains, it added. 

In the foreword to the 600-page white paper, Defence Minister Shinjiro Koizumi emphasised this paradigm shift: “Defence production and technological bases are a virtually integral part of defence capability itself, and their reinforcement is indispensable.”

Equally significant is Tokyo’s parallel move to ease defence equipment transfers, which Koizumi noted “helps ensure the domestic production capacity necessary for sustained operational capability”.

Beyond bolstering deterrence and response capabilities alongside the US and like-minded partners, he added that the move “allows countries to possess the same equipment and share production and maintenance and sustainment infrastructure, thereby enabling the provision of mutual support”.

The 2026 white paper, themed Security For The Future, bears a manga-style cover by popular illustrator Hitomi Kariya, 30, who has 139,200 followers on X. The ministry framed the artwork as aspirational, meant to convey “a futuristic cityscape built through technological advancements, and the smiles of the youth who will live in that future”.

Japan believes such a future hinges on a robust domestic defence base capable of deterring the perceived triple threat posed by China, North Korea and Russia, which the report noted are deepening their strategic cooperation. The sharp language describing the three countries remains unchanged from 2025.

The 2026 white paper serves as a prelude to Japan’s critical revision of its three core security documents – National Security Strategy, National Defence Strategy and Defence Buildup Programme – by the end of 2026.

China presents “an unprecedented and the greatest strategic challenge which Japan should respond with its comprehensive national power” together with the US and other like-minded countries, the white paper warned.

It pointed to a string of provocations, including a December 2025 encounter in which a Chinese fighter jet had intermittently locked its radar on a Japan Air Self-Defence Force (ASDF) aircraft for about 30 minutes.

Meanwhile, it added, North Korea poses “an even more grave and imminent threat to Japan’s national security than ever before” and Russia continues “showing its tendency to deploy the latest military equipment in the Far East”, including surface-to-ship coastal missiles and advanced fighter jets.

China, in response, has voiced strong opposition to the white paper, with its Ministry of National Defence spokesman Chen Xi saying on Aug 4 that it is “full of false narratives” and “hypes up the so-called China threat”.

He also said Japan’s “new militarism” – a term coined by Beijing but refuted by Tokyo – has become a genuine threat to regional peace and stability.

“We urge Japan to deeply reflect on its history of aggression, stop interfering in China’s internal affairs, stop misleading the Japanese people and the international community, and not go further down the wrong path of remilitarisation,” he added.

For decades, Japanese defence contractors operated under severe structural limitations as a peripheral industry, handicapped by strict post-war arms export bans. Low procurement volumes, with the Self-Defence Forces effectively the only customer, meant slim profit margins that led major domestic manufacturers such as Komatsu and Sumitomo Heavy Industries to downsize or abandon their defence divisions altogether.

The April 2026 decision to ease restrictions and allow the export of lethal weapons, subject to strict vetting and limited to 17 countries with which Japan has defence transfer agreements, opens the door to new markets.

Simultaneously, as the war in Ukraine underscores how artificial intelligence and mass-deployed, low-cost drones are reshaping modern battlefields, Tokyo is aggressively courting civilian tech start-ups. With the lines between commercial and military technology rapidly blurring, dual-use innovation has become a national priority.

A major shot in the arm came via the 2023 Act on Enhancing Defence Production and Technology Bases, which introduced direct government support while raising government contractor profit margins to a maximum of 15 per cent, up from 8 per cent.

This has injected fresh momentum into the industry, with companies increasingly submitting so-called Stable Manufacturing Plans for government approval.

In fiscal 2023, just 36 plans were approved, including 13 from small and medium-sized enterprises (SMEs). By fiscal 2024, the total had surged to 121, including 75 from SMEs. But in the latest fiscal year ending March 2026, there were 164 approvals, with a staggering 124 coming from SMEs.

Speaking to The Straits Times, Heng Yee Kuang, who heads the Security Studies Unit at The University of Tokyo, said: “Japan’s growing numbers of nimble SMEs and start-ups, especially in the space and drone sectors, now populate its defence industrial ecosystem long dominated by the so-called ‘primes’.”

He added: “It is also worth remembering that there is always a long supply chain in complex defence products. For instance, the ASDF’s F-15J fighter, built by lead integrator Mitsubishi Heavy Industries, involves an estimated 1,100 supply chain companies, approximately 80 per cent of which are SMEs.”

The white paper makes a direct pitch to the public, framing defence spending not just as a security necessity, but also as an economic engine.

It argues that reinforcing the defence production base will yield tangible dividends for civil society by creating highly skilled jobs, revitalising regional economies around manufacturing hubs and generating “technological ripple effects into the civilian sector”.

Kazuto Suzuki, director of the Institute of Geoeconomics think-tank, told ST: “If increased defence spending leads to new investment and job creation, it will certainly be positive for economic growth.”

He added: “However, a more important point is that the government is expected not only to invest in research and development, but also expand its procurement framework – specifically, by actively procuring from defence start-ups to adapt to new ways of warfare, and thereby stimulating private-sector investment.”