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Japanese defense industry

The security environment of  Japan and the whole region is threatened by expanding military and assertiveness of China and the testing of nuclear weapons and ballistic missiles by North Korea. Beijing declaration of its sovereignty (via an Air Defense Identification Zone) over the disputed Sengaku or Diaoyu islets in the East China Sea, as well as over the South China Sea has worsened its relations with Japan. Japan, the US, and other Asian nations are concerned about the Chinese island building and its military buildup, including missile placement, in the South China Sea.


Tensions between Japan and China over the Senkaku/Diaoyu Islands dispute have recently increased. Japan’s Defense White Paper released in July 2020 stated that China has “relentlessly continued attempts to unilaterally change the status quo by coercion in the sea area around the Senkaku Islands” and that “Japan cannot accept China’s actions to escalate the situation.” Coast guard and military ships from both countries continue to tail one another around the uninhabited Senkaku islands, known as the Diaoyus to China.


This has prompted the conservative government to loosen the bonds on Japan’s powerful military, and look to expand Japan’s military influence. Japan’s defence outlays for the year starting April 1 2018  will rise for a sixth straight year, increasing by 1.3 percent to 5.19 trillion yen ($45.76 billion), according to a budget breakdown published by the government. The biggest ticket item is 137 billion yen to reinforce defences against a possible North Korean ballistic missile attack. Beijing accused Tokyo of stoking military tensions in the region after Japan’s defence chief said the country might scrap its 1 per cent GDP cap on military spending to counter China’s armed forces.


Japan ranked ninth in the world in defense spending in 2020 at $49.1 billion, according to the Stockholm International Peace Research Institute, which tracks global military expenditures. Its defense budget grew just 1.2 percent from 2019 to 2020, and 2.4 percent over the past decade, according to SIPRI. Meanwhile, the nation was a top 12 importer of military systems in 2020, according to the institute. Ninety-seven percent of those imports were supplied by the United States, Japan’s closest ally.


The US State Department signed off on a Japanese buy of 105 F-35 Lighting II Joint Strike Fighters and associated equipment in July 2020.  Japan already has on order 42 F-35As and in December 2018 the Japanese government approved an increase of the order to 147 aircraft which would also include 42 F-35B Short Take-Off and Vertical Landing (STOVL). STOVL  models can operate from small islands skirting the East China Sea or from ships such as the Izumo-class helicopter carriers.


Japan will also spend 2.2 billion yen to begin acquiring medium-range air-launched cruise missiles able to strike sites in North Korea in a bid to deter any potential attack by Pyongyang, which continues to test ballistic missiles. The latest rocket launched by the North on Nov. 29 2017 reached an altitude of more than 4,000 km (2,485 miles) before plunging into the Sea of Japan.


Tokyo purchases much of its equipment through foreign military sales, which increased from about $1.7 billion in 2014 to about $6.4 billion in 2019, according to Michihiro Akashi, an analyst with the Mitsubishi Research Institute, a Japanese think tank. “FMS is a quick and effective way for Japan to secure the means to counter new threats,” he noted in a presentation earlier this year titled, “Toward Sound Development of the FMS System and Japan’s Defense Technology and Industrial Base.”


However, “the increase in FMS costs has raised concerns that Japan’s difficult financial situation will put pressure on the number of orders placed with the domestic defense industry,” he said. “The contribution of the Japanese defense industry to imported equipment is low and this puts pressure on the value of orders.”


Thrust on Military Indiginization

In Oct 2018, it was reported that Japan will develop a new aircraft to succeed its F-2 fighter after rejecting proposals Lockheed Martin, Boeing and BAE System to supply new jets. Some 92 F-2s of the Japan Air Self-Defense Force are expected to reach the end of their service life in the 2030s to replace which the Japanese government has sought bids from Lockheed Martin for its F-22, Boeing for its F-15, and BAE Systems for its Eurofighter Typhoon. All three failed to meet the cost and technical parameters set out in the procurement program, Mainichi Shimbun reported  quoting unnamed MoD officials.


The new fighter jet development project will be part of the next five-year mid-term defense program. The new jet could be a joint development program with foreign companies with Japanese companies developing the engine and some other main components while a second option calls for the jet to be fully developed domestically.  Japan announced Mitsubishi Heavy Industries as the prime contractor to build its next-generation fighter jet in Oct 2020.


The principal objective of the FS-X program is to develop a research prototype aircraft — an “advanced technology demonstration unit” — to test the capacity of Japan’s defense industry to develop, among other things, a powerful fighter engine and various other indigenous stealth fighter aircraft technologies. Work the country plans to continue includes the development and refinement of stealth designs and materials, active electronically scanned array radars, and afterburning turbofan engines. Toward that end, local engine manufacturer IHI is expected to continue work on its XF9-1 afterburning turbofan. The FS-X program highlighted some of the struggles the Japanese defense industry faced.


Japanese Defense Industry

Despite producing and supplying arms to one of the most powerful and expensive military forces, Japan’s defense industry remains to be a small sector in the nation’s overall manufacturing output. Due to the small economy of scale within the defense industry, local manufacturers that produce arms for Japan do not prioritize arms production heavily for revenue. Japan’s top manufacturers rely on less than 10% of their revenue from defense contracts. The small profit return and small development in engineering skill contributes to a lack of growth; which leads to expensive production, an increased dependency on foreign defense contractors and/or companies pulling out of the defense sector; which in turn hurts the defense industry even more.


However, the nation is hindered by a number of factors. One is that, unlike the United States and other developed countries, it has few defense-focused firms, noted retired Lt. Gen. Shinichi Iwanari, former commander of Air Development and Test Command for the Japanese Air Self-Defense Force. “Most defense companies in the U.S. focus … on the military sector strategically. They have market penetration strategies and product development strategies,” he said through an interpreter during a recent panel hosted by the International Security Industry Council Japan, a Tokyo-based nonprofit. In contrast, Japanese companies that supply military equipment to the nation’s Self-Defense Forces are still more focused on the civilian sector, Iwanari noted.


Japan’s defeat in World War II — and subsequent adoption of a pacifistic foreign and defense policy that lasted for 70 years — created conditions that led to the country’s current situation, he said. “Military work disappeared and civil work took center stage,” he explained. ”That diversification predominates as a business strategy” today, he added. “Looking at the composition of Japan’s defense industry, most of the companies have many business divisions, and defense accounts for only a few percent of their business.”


Gregg Rubinstein, a Japan expert at the Washington, D.C.-based Center for Strategic and International Studies, said the country’s defense industry is characterized by inefficient, high-cost production, and research-and-development efforts that “mostly reinvent” foreign products with little innovation. Meanwhile, it has to contend with relatively flat procurement funding and increased imports of high-cost advanced equipment, he noted.



Policy initiatives

Over the past decade, Tokyo has rolled out new guidance including: a new National Security Strategy (2013), Strategy on Defense Production and Technological Bases (2014), and a revised policy on defense exports (2014). In 2015, it also stood up a new Acquisition, Technology and Logistics Agency to enable more cost-effective acquisition and promote international outreach. The moves came amid growing concerns about China’s military modernization and aggressive behavior toward Japan and other nations in the Asia-Pacific region.


“In order to develop, maintain and operate defense capability steadily with limited resources in the medium- to long-term, Japan will endeavor to engage in effective and efficient acquisition of defense equipment, and will maintain and enhance its defense production and technological bases, including through strengthening international competitiveness,” the National Security Strategy stated.


To offset some of the problems, in 2013 Japan began to participate in international technology cooperation with other countries beyond the United States, such as the United Kingdom and Australia. Japan’s re-entry into the international arms market would allow Japanese manufacturers to establish more customers to further increase revenue and lower unit cost. The establishment of ATLA further benefits the defense industry by enhancing the efficiency of R&D, project management, and procurement of military technology.  One other potential for the Japanese defense industry’s growth is through the usage of dual-use technology. Japan possesses a vast array of advanced civilian technologies that have military applications.  Through ATLA, the Ministry of Defense (MOD) has actively sought research collaborations with various research institutes, universities and companies to utilize advance civilian technology.


Defense Exports

For Japan, the benefits of exporting arms to another country includes improving economy of scale in the defense industry, lowering unit cost of the product and strengthen international relationships. Following the end of the self-imposed ban in 2014, Japan began to promote its arms to the international market and has attracted a number of countries interest in Japanese arms. Japan secured its first export on 17 July 2014 by supplying gyroscopes to the U.S. to develop PAC-2 missiles for Qatar.


Despite the efforts, Japan continues to struggle with securing a major export deal. One issue Japan faces when exporting arms is the product’s high unit cost and unique domestic requirements that might not be favorable for outside customers. In this regard, some have noted that Japan’s defense industry suffers from Galápagos syndrome. Another issue Japan faces is its lack of experience in exporting arms, exporting untested products, and facing major competition against established suppliers. There is also hesitation for Japanese companies to participate due to arms sales representing a small amount of revenue and/or fear of reputation damage at home by being labeled as “merchants of death”.


Japan’s unsuccessful attempt at exporting the Sōryū-class submarine to Australia highlighted Japan’s major weaknesses in exporting arms to another country. The project, worth A$50 billion to replace Australia’s ageing fleet of Collins-class submarines, could have been Japan’s first major arms export since lifting the export ban in 2014, but it ultimately lost to French firm Direction des Constructions Navales Services (DCNS) with their proposal on a conventionally powered variant of the Barracuda-class submarine. Some major weakness shown was Japan’s lack of experience exporting arms and competition against more experienced competitors.


The development of the Mitsubishi X-2 is to help develop technologies and knowledge needed to produce a sixth-generation stealth fighter to succeed the Mitsubishi F-2. The X-2 made its historic maiden flight on 22 April 2016, cementing Japan as the fourth country in the world to fly their own stealth jet. The X-2’s development is seen as a sign of Japan’s aerospace and defense industry’s revitalization.


Rubinstein said Japan’s defense industry can “survive” on licensed production and support of imported systems, but that won’t be enough for it to grow. International trade and investment are critical to Japan’s future defense industrial base, he said. To remain competitive, it must market its products and technologies to the outside world. It has a lot of work to do in this regard. The nation did not even make it onto SIPRI’s list of the top 25 arms exporters for the 2016-2020 time frame.


“Government and industry often seem to work at cross purposes on international engagement. Industry tends to blame government for lack of guidance while the government of Japan blames industry for not trying hard enough to take initiatives,” Rubinstein said. “Each awaits action by the other, and often nothing happens as a result.”


Protectionist R&D efforts continue to discourage international collaboration and isolate Japan, overly complex export control processes lack transparency and offer little guidance for industry, and information security measures lack central oversight as well as effective coordination with industry, Rubinstein said.



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