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Published on : May 24, 2016

The Japanese defense industry is standing at an interesting crossroads at present, with the steady drop in defense expenditure in the first half of the decade expected to be followed by slow but steady increment till the start of the next one. Japan’s defense budget fell from US$59.1 bn in 2012 to US$41.7 bn by 2016. This represented a marked negative CAGR of -8.36%. However, the Japanese defense industry is expected to receive increasing support from the state in the coming years, with defense expenditure expected to rise to US$45.8 bn by 2021.

Japan’s Defense Investment to Total US$220.9 bn 2017-2021

Despite being better known for its pacifist stance, Japan is one of the top 10 spenders on defense. The Japanese government is expected to supply the armed forces a total of US$220.9 bn in the forecast period from 2017 to 2021, with transport helicopters, amphibious ships, multi-role aircraft being among the major segments of the market expected to benefit from the steady funding. However, the defense budget of Japan is still expected to remain below 1% of the nation’s total expenditure over the forecast period, with an average figure of 0.96% predicted. Among the various divisions of Japan’s armed forces, the army accounts for the largest share in the defense budget.

The primary factor propelling Japan’s defense budget is the nuclear threat from North Korea and territorial disputes with Russia and China. Along with international disputes, the increasing organized crime in Japan and the high prevalence of natural disasters are among the main drivers for expenditure on homeland security.

Increasing Import of Transport and Multi-role Aircraft to Boost U.S. Companies in Japan Defense Industry

The increase in Japan’s defense expenditure in the coming years is expected to be driven by the increasing purchase of multi-role and transport aircraft in the coming years. The U.S. is expected to play a major role in this, due to the high demand for F-35 aircraft. Japan is also expected to sign new defense import programs with several other countries in the coming years.