With Japan's defense budget on the rise, manufacturers specializing in defense materials like radar and missiles are expanding workforces and increasing capital expenditures. This is driven by the government's five-year plan starting in fiscal 2023 for substantial budget increases and Prime Minister Sanae Takaichi's proactive defense stance. Companies anticipate further order growth, turning defense-related business into a burgeoning sector.
Japan's rising defense budget is providing a strong tailwind for electronics and heavy industry firms. The Defense Buildup Program, decided at the end of 2022, sets a policy to increase total defense spending for fiscal 2023-2027 to ¥43 trillion, about 1.5 times the amount for 2019-2023. The fiscal 2025 supplementary budget, the first under the Takaichi administration, allocates about ¥1.1 trillion to security-related costs, achieving the government's goal of raising defense spending to 2% of GDP two years ahead of schedule.
At an NEC Corp. investor briefing in November, Executive Officer Hiroyuki Nagano, overseeing aviation, space, and defense, expressed optimism: “The fields the Defense Ministry is prioritizing—space, cyber, and electromagnetic warfare—are right in our wheelhouse. Should the government heavily invest in these areas, it will lead directly to an increase in our market share.” NEC's contract value with the Acquisition, Technology and Logistics Agency reached ¥311.7 billion in fiscal 2024, nearly threefold from fiscal 2022. The company has raised its plan to increase defense business workforce by 1,600 from fiscal 2020 levels by the end of fiscal 2025 and will expand production facilities by 50,000 square meters.
Mitsubishi Heavy Industries Ltd. President Eisaku Ito stated at a November press conference: “The government’s policy is to prioritize the defense sector. As requests from the government intensify, we anticipate a corresponding increase in our orders.” Defense business sales, at about ¥500 billion in fiscal 2023, are projected to double to ¥1 trillion by fiscal 2026, with a 40% workforce boost. Mitsubishi Electric Corp. targets defense sales exceeding ¥600 billion by fiscal 2030—fourfold from 2023—and plans to build eight new factories starting in 2025.
Historically, low profit margins around 8% deterred many firms from defense due to massive investments without commensurate returns. The Defense Ministry is working to raise this to a maximum of 15% by adding profits for efforts like shorter delivery times. Toshiba Corp., which established a defense new business expansion promotion division in April, has developed a system to detect, track, and capture suspicious drones for use at airports, nuclear power plants, and Self-Defense Forces bases. Takushoku University Prof. Heigo Sato noted: “As global demand for defense business strengthens, Japanese companies need to accelerate overseas expansion to win in international competition.”
