Japan - Defense and Security: Territorialconflictsandmodernizationtodriveexpenditure (Strategy, Performance and Risk Analysis)
The aircraft category remains one of the key growth drivers of the Japanese defense and security industry, accounting for 48.0% of capital expenditure in 2016; followed by the C4ISR electronics and IT category with 15.2%. The country’s defense expenditure recorded a CAGR of -8.3%, falling from US$59.1 billion in 2012 to US$41.6 billion in 2016. However, due to the procurement of defense equipment, and security concerns propelled by ongoing territorial disputes with China and Russia, expenditure will reach US$45.7 billion in 2021, representative of a forecast-period CAGR of 1.7%.
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Japan has strong military ties with other countries:
A strong military relationship with other countries enables Japan to procure advanced weaponry. It has solid defense relations with the US; the two countries having signed a treaty to assist each other in defense capability developments on January 19, 1960. In fact, the US accounts for 90% of Japan’s total defense imports. Aside from the US, Japan has agreements with the Philippines and Vietnam and is in the process of extending defense equipment cooperation agreements with the UK, France, and Australia.
Japan has a modest defense budget compared to China and India:
Japan’s defense expenditure recorded a CAGR of -8.0%, falling from US$51.1 billion in 2012 to US$41.7 billion in 2016 in sharp contrast with China and India which registered respective CAGRs of 9.0% and 5.0% to reach US$146.3 billion and US$45.7 billion in 2016. Japan allocated an average of 1.0% of its GDP to defense during 2012-2016, with its primary focus being social development and structural reforms.
Defense import expenditure to increase due to aircraft procurements:
Total import expenditure increased at a CAGR of 7.8%, from US$244.0 million in 2012 to US$330.0 million in 2016, due to the import of missile defense and C4ISR systems from US companies. The government signed a contract with Lockheed Martin for 42 JSFs, driving the country’s import expenditure.