^{Photo: Kyodo News}

Japan’s defense sector could be entering one of the most important transformations in its modern history as the country moves from a largely domestic military manufacturing model toward becoming a serious player in the global arms trade.

After decades of strict export restrictions and limited international defense activity, Tokyo’s gradual easing of weapons export rules is opening the door for Japanese defense companies to compete in a global market now experiencing record demand. Analysts say the timing could prove highly favorable as military spending surges worldwide and governments scramble to secure advanced weapons systems amid rising geopolitical instability.

According to the Stockholm International Peace Research Institute (SIPRI), global military expenditure reached an all-time high of $2.89 trillion in 2025, marking the 11th consecutive year of growth. Ongoing conflicts in Eastern Europe and the Middle East, combined with intensifying tensions across the Indo-Pacific region, have accelerated demand for missiles, naval platforms, air defense systems, surveillance technologies, and advanced fighter aircraft.

Against that backdrop, experts believe Japan’s engineering expertise, technological sophistication, and strategic alliances could position the country as a powerful new force in the international defense economy.

A Major Shift in Japan’s Defense Policy

For much of the post-World War II era, Japan maintained strict limitations on exporting military equipment under its pacifist security framework. Defense manufacturers largely focused on supplying the country’s Self-Defense Forces rather than competing internationally.

That model is now changing.

Tokyo has steadily loosened decades-old restrictions in response to a more dangerous regional security environment, growing pressure from allies, and the need to strengthen domestic industrial capacity.

The policy shift reflects Japan’s broader defense transformation. The country increased military spending by nearly 9.7% in 2025, bringing total defense expenditures to approximately $62.2 billion — equal to about 1.4% of GDP and the highest share recorded since 1958.

Japan has also pledged to continue increasing defense investment over the coming years as it strengthens deterrence capabilities against regional threats.

Experts say the government now views defense exports not only as an economic opportunity but also as a strategic necessity for maintaining industrial readiness and technological competitiveness.

Rising Global Demand Creates New Opportunities

The international defense market is experiencing unprecedented demand.

Countries across Europe, Asia, and the Middle East are rapidly replenishing weapons stockpiles after years of heightened geopolitical conflict. The prolonged Russia-Ukraine war dramatically accelerated defense procurement across NATO and allied nations, while escalating tensions involving Iran and broader instability in global trade routes continue pushing governments toward larger military budgets.

Hirohito Ogi, senior research fellow at the Tokyo-based Institute of Geoeconomics, said many countries are urgently seeking weapons systems including artillery shells, interceptor missiles, armored vehicles, and naval defense equipment.

This demand surge is creating new openings for Japanese manufacturers.

Analysts say Japan may initially focus on areas where its industrial capabilities are already highly advanced, particularly maritime security systems, radar technologies, interceptor missiles, and naval platforms.

Stephen Nagy, professor of politics and international studies at Tokyo’s International Christian University, described Japanese engineering as “top-tier” and argued the country’s future competitive advantage will likely come from high-end precision systems rather than mass-produced low-cost weaponry.

Japan’s Fighter Jet Program Could Become a Flagship Export

One of the biggest opportunities for Japan’s defense industry may come through the Global Combat Air Programme (GCAP), a next-generation fighter jet initiative being jointly developed by Japan, the United Kingdom, and Italy.

The advanced sixth-generation aircraft is expected to eventually replace the Eurofighter Typhoon in Britain and Italy, along with Japan’s Mitsubishi F-2 fighter fleet.

The project is widely viewed as one of the most ambitious multinational defense programs currently underway outside the United States.

Analysts believe the fighter program could become Japan’s “crown jewel” defense export over the next decade if successfully commercialized internationally.

Beyond the aircraft itself, the program also strengthens Japan’s role in advanced aerospace engineering, AI-integrated combat systems, stealth technologies, and next-generation defense manufacturing.

Naval and Air Defense Systems Lead Early Expansion

Japan’s near-term export potential is expected to center heavily around maritime and air defense technologies.

The country has already begun attracting international interest in several defense products.

In April, Australia signed contracts for three new general-purpose frigates based on the upgraded Japanese Mogami-class warship design developed by Mitsubishi Heavy Industries. The agreement marked one of Japan’s most significant international defense deals in recent years.

Other countries are also exploring Japanese defense partnerships.

Indonesia has reportedly shown interest in Japanese high-speed patrol boats, while the Philippines continues discussions with Tokyo regarding possible transfers of defense equipment and maritime security systems.

New Zealand is also evaluating the upgraded Mogami-class frigates as part of its naval modernization efforts.

Experts believe these types of partnerships could become increasingly common as Indo-Pacific nations strengthen maritime security capabilities amid rising tensions in regional waters.

Challenges Could Slow Japan’s Global Expansion

Despite growing optimism, analysts warn Japan still faces major obstacles before becoming a dominant global defense exporter.

One of the biggest challenges is international sales experience.

Unlike established arms exporters such as the United States, France, South Korea, or Israel, Japanese firms have limited experience marketing defense products globally, negotiating international procurement contracts, or building long-term export support networks.

A previous easing of export restrictions in 2014 delivered relatively modest results. According to the International Institute for Strategic Studies, Japan exported only a handful of air surveillance radar systems to the Philippines before securing the recent Australian frigate deal.

Analysts say Japanese firms still need to improve international marketing capabilities, pricing competitiveness, and supply chain flexibility.

Cost competitiveness also remains a concern.

South Korea has emerged as one of the world’s fastest-growing defense exporters partly because it can manufacture weapons quickly, at lower costs, and at large scale. Japanese manufacturers, by comparison, often face higher production costs and more limited manufacturing flexibility.

Production Capacity Remains a Critical Issue

Another major constraint is industrial scale.

For decades, Japanese defense companies primarily produced equipment for a single domestic customer — the Self-Defense Forces. That reduced incentives to build large-scale production capacity or create extensive export-oriented supply chains.

Japan’s Ministry of Economy, Trade and Industry previously noted that many companies viewed the defense sector as less attractive than civilian industries due to lower profit margins and limited growth opportunities.

As a result, several firms reduced or exited defense operations over the years.

Now, the government hopes export opportunities can reverse that trend.

Analysts believe larger export volumes could encourage Japanese manufacturers to invest more aggressively in defense production infrastructure, helping reduce costs and improve scalability during peacetime.

That industrial expansion would also strengthen Japan’s wartime readiness by ensuring companies maintain higher baseline production capacity rather than scrambling to scale output during emergencies.

Defense Stocks Draw Investor Attention

The changing landscape is also attracting increasing investor interest.

Analysts say Japan’s major industrial and defense firms could become some of the biggest beneficiaries of the country’s evolving military strategy.

Alongside Mitsubishi Heavy Industries, companies including Kawasaki Heavy Industries, IHI Corporation, and Mitsubishi Electric are viewed as well-positioned to capitalize on future export opportunities.

Several investment firms have already identified Asian defense as one of the fastest-growing long-term investment themes globally.

As military budgets continue rising and geopolitical uncertainty intensifies, investors increasingly see defense manufacturing as a sector with multi-decade growth potential.

Japan’s Defense Industry Could Be Entering a New Era

While Japan is unlikely to dominate the global arms market overnight, analysts believe the country is steadily laying the foundation for a much larger international defense presence.

Rather than competing directly in every weapons category, Japan is expected to focus on specialized high-tech systems where its engineering expertise provides a clear advantage.

If current export reforms continue and industrial capacity expands successfully, Japan’s defense sector could evolve from a domestically focused industry into one of the Indo-Pacific’s most strategically important military manufacturing hubs over the next decade.