Japan’s Defence Industry
The recent AUKUS alliance announcement of an enhanced Trilateral Security Partnership between Australia, the United States and the UK took many other allies by surprise. The Partnership is designed to foster ‘deeper integration of security and defence-related science, technology, industrial bases, and supply chains’ (White House: 2021). Whilst much was made of France losing its submarine deal. Japan was also another country that missed out on this Partnership. The most likely reason for Japan missing out is that its defence industry in its current form is incompatible with the deep defence industrial integration and intelligence sharing that AUKUS requires. Japans defence Industry carries on the legacy of quality production synonymous with wider Japanese manufacturing.
Nevertheless, there are serious shortcomings. Namely, a high production cost to a low numerical series production prevents Japanese made platforms from reaching economics of scale. Additionally, Japan invests a considerably smaller amount in research and development than its regional competitors. A breakdown of Japans 2021 defence Budget can be seen below. The high personnel costs reflect the endemic issue of Japan’s sustained low birth rate, forcing the public sector to raise wages in an increasingly competitive labour market.
Whilst 2021 is Japan’s largest defence budget on record, the low funding allocation towards research and development (2.7%) is noticeable. Another noticeable feature of this breakdown is the % of the budget allocated towards procurement (3.2%). This figure highlights why Japanese defence companies lag behind their global competitors. Before Shinzo Abe’s lifted the export ban placed on Japanese defence companies, their sole customer was the Ministry of defence. Japan’s Pacifistic tradition and subsequent restrictions severely restricted the Japanese defence industry. 3-4% of one country’s defence budget does not represent a significant enough financial opportunity for Japanese defence companies to be competitive. However, In 2014 Shinzo Abe’s Government lifted the export ban enabling Japanese companies to compete in the International Market. Nonetheless, due to their cost disadvantage, they have found this difficult, with notable failed attempts to sell Soryu-class submarines to Australia and Kawasaki P-1 Patrol aircraft to the UK.
Challenges aside, removing barriers to defence collaboration with close allies on critical technologies and platforms will be increasingly crucial going forward to match the global defence industry trends towards multi-lateral acquisition. For example, the F-35 Joint Strike Fighter is a joint construction effort involving eight partner countries at various contribution levels. Meanwhile, Japan, which is still set to purchase 147 jets, is not contributing to its industrial potential. It will most likely be sometime before japan deepens its defence industrial relations with crucial allies or secures a significant export deal. However, some progress is being made in its region with a clause in the 2020 trade agreement with Vietnam allowing the sale of defence equipment. Supplying other countries in the area that are also suffering from Chinese maritime incursions will be an excellent way to market flagship Japanese defence products.
Japans two largest defence companies: Mitsubishi Heavy Industries and Kawasaki Heavy Industries, have suffered revenue losses from other parts of their business due to the pandemic. The LDP (Liberal Democratic Party) led Japanese Government has committed 55% of the supplementary 2021 budget to help improve domestic defence firms finances. Extra funding should help with the scale with Japan just breaking spending over 1% of GDP on defence and targeting the NATO Average of 2% in the medium term. Whilst progress since 2014 has been modest, Japan’s defence industry stands to gain from this increased investment and supportive political climate.
By: Luc Wilson