Japan's defense buildup draws small, midsize manufacturers into surging demand

Japan's growing defense budget is attracting small and midsize manufacturers, leading to increased demand for their products. The annual defense budget has risen from about 5.4 trillion yen ($33.95 billion) in fiscal 2022 to nearly 9 trillion yen ($56.58 billion) over the past four years. Major defense companies are hiring workers from affiliates to meet the rising demand, but smaller firms are struggling to keep up due to a labor shortage.

The acquisition of defense-related business is becoming increasingly profitable, with some companies expecting their sales in defense and civil aviation divisions to triple this year compared to 2021. The government is supporting the industry with various measures, including a law that can cover expenses incurred by subcontractors for capital investment and other measures that lead to stable or efficient production of weapons and other state-procured items.

The Defense Industry Entry Promotion Exhibition, which has been held since 2016, has seen a steady increase in the number of exhibitors over the past five years, with about 60 companies participating in February. Companies with a track record in defense are gaining a strong selling point when securing civilian contracts. Despite some negative views among employees regarding the appropriateness of being involved in weapons manufacturing, many business owners see the easing of export rules as beneficial for protecting their partners in Asia and the Japanese economy.