The Japanese defense market is anticipated to register a CAGR of over 2.5% during the forecast period, 2020-2025.
- The growth in the defense budget and the ongoing military modernization are expected to be the major drivers for the growth of the market.
- 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.
- 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
The Air Force Segment Recorded the Highest Market Share in 2019
The Air Force segment is expected to experience the highest growth rate during the forecast period, owing to various ongoing procurement plans for replacing the aging combat aircraft and expanding fighter jet fleet. With the relaxation in Japan’s strict arms export regulations, the Japanese Ministry of Defense (MoD) entered an agreement with the British government to develop, design, and procure a next-generation air-to-air missile. Moreover, to ensure the country’s air dominance in the southwestern island chain, in December 2018, the country ordered 63 Lockheed Martin F-35A models, and, in August 2019, it ordered an additional 45 F-35B fighter aircraft. Similarly, in 2018, Japan received nine E-2D Advanced Hawkeye (AHE) Airborne Early Warning and Control (AEW&C) aircraft from the US. The country is also developing its own fighter jet codenamed as F-3. However, the high cost of military aircraft development may lead Japan to search for foreign partners, in order to collaborate on the project. Such developments are envisioned to contribute to the growth of the Air Force segment during the forecast period.
The Japanese Defense Market is Anticipated to Experience a Steady Growth During the forecast period
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 in the near future.
Various players, such as Kawasaki Heavy Industries, Mitsubishi Heavy Industries, ShinMaywa Industries, Ltd, Japan Steel Works Ltd, and Toshiba Corporation, may 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. In 2018, Shinmaywa Industries Ltd announced that it signed a memorandum of understanding with Mahindra Defense for developing US-2 amphibious aircraft.
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