The Japan aerospace and defense market is anticipated to grow at a CAGR of more than 4% during the forecast period.
- The Japanese aerospace sector is one of the largest in the world with a strong international reputation, particularly in the field of research and development (R&D). Japanese companies have great potential in the research and development of dual-use (non-offensive but military) aerospace defense technology, such as helicopters and light attack aircraft.
- The security environment in Japan has become increasingly stressed with several international challenges and destabilizing factors becoming more acute. Hence, to adapt to the growing changes in the security environment, Japan has been strengthening its defense capabilities at a rapid pace. Between 2017 and 2020, Japan's defense budget witnessed a growth of 2.75% to reach USD 48.5 billion in 2020 from its 2017 value of USD 47.2 billion. The growth in the defense budget and the ongoing military modernization are expected to be the major drivers for the growth of the market.
- However, an impending economic slowdown, due to the country's plummeting exports, the brief trade war between the US and China, and the COVID-19 outbreak, is expected to deleteriously affect the defense expenditure of the country during the forecast period.
Key Market Trends
Aerospace Sector to Witness Significant Growth During the Forecast Period
Japan continues to offer a lucrative market for imported aircraft, aircraft parts, and engines. Currently, Japan is playing a pivotal role in the development of several aircraft families, including the B777, B777X, and B787. Japanese companies are also actively engaged to provide engineering services towards the development and MRO of aircraft engines, such as the V2500, Trent1000, GEnx, GE9X, PW1100G-JM, etc. The Japanese firms have also contributed to the development of various engineering test satellites, marine and terrestrial observation satellites, communications, broadcasting, and global navigation satellites, etc., including weather satellites such as the HIMAWARI 8 and 9. Launch vehicles such as the M-V, H-IIA/B, and Epsilon rocket have also been developed by the Japanese space firms. The Japanese satellite manufacturers are also using their advanced technical capabilities, high quality, and competitive costs to open the overseas market. In April 2020, the Japanese Ministry of Defense (MoD) started the Space Domain Mission Unit to protect the national airspace from potential threats as rivals develop missiles and other technology. Such developments render a positive outlook for the aerospace sector during the forecast period.
The Japanese Defense Market is Anticipated to Experience a Steady Growth During the Forecast Period
In 2019, Japan was ranked ninth on a global scale in terms of military expenditure of around USD 47.6 billion. The defense budget of Japan for FY2020 is USD 48.8 billion. The country had also announced plans to spend around USD 242.7 billion on defense for the next five years. Additionally, the new National Defense Program Guidelines (NDPGs) and the associated Mid-term Defense Plan (MTDP) have also put a strong emphasis on three new defense domains in the country, namely, cyber, space, and electronic warfare (EW). In the defense budget of FY 2020, the Japanese government approved USD 459.2 million budget for space-related projects, which includes projects, like procurement of Space Situational Awareness (SSA) Satellite (Space-based Optical Telescope), enhancing resiliency of satellite communication system, etc. Similarly, the cyber-related budget was USD 240 million, which includes projects, like the procurement of Cyber Information Gathering System and designing of AI-enabled Systems to respond against cyber-attack. The government is also planning to develop Stand-off Electronic Warfare Aircraft at an estimated cost of USD 140 million and a Network Electronic Warfare System at an estimated cost of USD 93 million. Developments in such domains are expected to be a part of Japan’s new multidimensional integrated defense force. Thus, such ongoing developments are expected to drive the Japanese defense market during the forecast period.
Prominent players in the Japan aerospace and defense market are Kawasaki Heavy Industries, Mitsubishi Heavy Industries, ShinMaywa Industries, Ltd, Japan Steel Works Ltd, and Toshiba Corporation. These companies will hold significant market share during the forecast period. Various initiatives and product innovations are being made by companies, which have led them to strengthen their presence in the market. Japan has adopted new principles and guidelines on arms exports and would permit arms exports to a country only if they serve the purpose of contributing to international cooperation and its security interests. The ongoing COVID-19 pandemic threatens contractions to Japan’s GDP which would be worsened by a prolonged epidemic. At present, there are high levels of uncertainty regarding defense spending forecast as Japan is still in the early stages of mitigating the outbreak. Long-term effects on the defense supply chain will inevitably delay production and government expenditure for 2021 may focus more on stimulating the economy to keep markets out of recession. Hence certain envisioned deals may face cancellation. On this note, in June 2020, the Japanese National Security Council announced the cancellation of the plans to deploy the Aegis Ashore land-based US missile defense systems after encountering a series of setbacks, including criticism on the selection of one of the deployment sites, repeated cost estimate hikes that climbed to JPY 450 billion for operation and maintenance over a life span of 30 years.
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