Japan Market Awakens

Is Japan a major player on the global defense market? Not yet, but the activity of the current PM indicates he aspires to change the rules of the game

Japan Market Awakens

Since Shinzõ Abe was appointed as Japan’s new Prime Minister in late 2012, two consecutive increases in defense expenditure were noted, as well as a third peak demand of 55 trillion Japanese Yens for the defense budget.

Last July, Abe promoted an amendment of the country’s constitution through a controversial interpretation, which enables Japan to come to the aid of its military ally – the USA. Earlier this year, Abe moderated the ban on the exportation of arms from Japan.

The decision to flex the rules regarding Japanese arms exports caught the European defense industries by surprise. They were confident that such a decision would take much longer to make and that it would be controversial. But on the Japanese side, what everyone – the politicians especially – want now is to advance as quickly as they can.

According to statistics provided by the Japanese Defense Ministry, Japan’s defense budget only accounts for 1% of the Gross Domestic Product (GDP). It is lower than that of China (1.3%) and only amounts to one quarter of the defense expenditure out of the GDP of the USA. In comparison, NATO’s minimum defense budget requirement is 2% of the GDP. There are those who claim that the changes Abe dictates are conceived as dangerous sabre rattling. Conversely, as his proponents insist on explaining, it is a necessary adjustment of Japan’s dysfunctional defense mechanism.

The effect on Japan’s major military industries has been amazing. According to Goldman Sachs, the shares of those industries, including Mitsubishi Heavy Industries (MHI), Mitsubishi Electric and Kawasaki Heavy Industries – have skyrocketed by 70% since Prime Minister Abe ascended to power.

The present government of Japan wishes to bring about a substantial increase in defense contracts with the world, but still blocks foreign trade agreements and cooperative alliances as it reviews them extremely cautiously. The government’s primary concern is that the sales of arms or the components thereof will end up in third-world countries.

Apparently, some of the strongest corporations in Japanese economy are eager to spread their wings. MHI and Kawasaki Heavy Industries, who jointly developed Japan’s Soryu Class submarine (the world’s largest diesel-electric powered submarine), had acquired most of the technologies outside of Japan. MHI also builds the guidance system and rocket engine for the Patriot air-defense system developed by Raytheon. The new rules will pave the way for the exportation of innovative prototypes as well as mass-produced weapon systems.

Another relevant move took place when MHI and a delegation of Japanese defense industries, including Mitsubishi Electric, Kawasaki Steel, Toshiba, Fujitsu, Hitachi and NEC participated in this year’s Eurosatory exhibition in Paris, one of the world’s largest defense exhibitions for the first time. The present government re-lays the foundations for the establishment of a significant defense industry.

Will Japan emerge as a major player in the global arms industry? Probably not, at least for the time being. One thing is certain: 70 years of pacifism mean that Japanese arms have not been tested in battle – and that is a substantive requirement from US and Russian arms manufacturers. At the present time, the Japanese corporations also lack the ability to offer maintenance and support services like their competitors from other countries.

Nevertheless, it is obvious that Prime Minister Abe has changed the rules of the game – even though it is not yet clear which rules specifically. The emerging change in Japanese policy calls for alertness and offers an opportunity that may be exploited even by the State of Israel, and especially by its thriving defense industries. Israeli arms exporters should act now and remember that this is the time to establish cooperative alliances. Japan is looking for channels of investment and development that will affect its economy, and the arms industry is one of the primary directions for activity and cooperation.

The exportation of arms to Japan is a more complex process, but in view of the threats Japan currently faces, it seems that it is more receptive to the importation of state-of-the-art weapon systems. One should bear in mind the fact that activity in the Japanese business world is slow and takes a long time to mature. The Japanese are thorough and suspicious by nature. Indeed, a relationship of mutual trust must be established before a contract may be signed. From the moment it has been signed, however, everything is conducted with Japanese accuracy, punctuality and reliability. Accordingly, patience and tolerance are the key factors in any trade relations with the Japanese – in the defense field as in any other field. 

Assaf Marco is a former employee of the Israeli defense establishment and presently serves as a representative in Tokyo