SAN ANTONIO, ZAMBALES, PHILIPPINES – APRIL 28: Japanese Self-Defense Force personnel raise the Japanese flag in front of a missile system during an Integrated Air and Missile Defense (IAMD) exercise as part of the ongoing Balikatan (Shoulder-Shoulder) multinational exercise at a naval base in San Antonio, Zambales, Philippines, on April 28, 2026. The deployment of U.S. and Japanese troops and missile systems comes amid rising tensions in the disputed South China Sea and Taiwan Strait, with the People’s Liberation Army stepping up military activity in the waters and Beijing criticizing increased defense cooperation between Japan and the Philippines. (Photo by Daniel Ceng/Anadolu, Getty Images)
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Japan’s easing of decades-old arms export restrictions represents a major opportunity for Japan’s defense industry in a world increasingly hungry for arms.
The world situation seems to be good. On April 27, SIPRI reported that global military spending will reach a record $2.89 trillion in 2025, increasing for the 11th consecutive year.
Countries are “desperate” to acquire weapons such as air defense missiles, artillery shells and armored vehicles, an area where Japanese companies have the potential to expand their market share in the international defense economy, Hiroto Ogi, a senior researcher at the Tokyo-based Institute for Global Economic Research, said in an interview with CNBC.
South Korea could provide a template—South Korean defense companies have been able to produce weapons of comparable quality to U.S. weapons cheaper and faster in recent years, benefiting as the Russia-Ukraine war drags on—and the Iran war could further stimulate demand.
In addition, traditional US partners are now looking for alternative defense suppliers in the face of surging demand and doubts about their alliance with the US.
Stephen Nagy, a professor of politics and international studies at International Christian University in Tokyo, said Japan’s engineering technology was “first-class” and its “crown jewel” would be the next generation Global Combat Air Program fighter jet, co-developed with Britain and Italy.
The new fighter jet will reportedly replace the Eurofighter Typhoon in the UK and Italy, and the Mitsubishi F-2 fighter jet in Japan.
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Japan’s short-term opportunities are likely to be concentrated in areas where Japan already has clear technological strengths.
Nagy said the country would initially focus on maritime domain awareness and air defense, including “advanced radar systems, patrol vessels and jointly produced interceptor missiles.”
Australia signed a contract for its first three general-purpose frigates in April. The frigate will be built by Mitsubishi Heavy Industries based on the Japanese improved Mogami design.
Foreign interest in Japan’s defense systems is also growing, with Indonesia showing interest in high-speed patrol vessels.
The Philippines is also in talks with Japan about possible transfers of defense equipment, and New Zealand reportedly wants an upgraded Mogami-class frigate ordered by Australia.
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However, challenges still remain. ICU’s Nagy said Japanese companies currently lack international marketing experience and cost competitiveness.
“Rather than immediately taking control of the world’s arms bazaar, they are likely to develop specialized high-tech areas among trusted allies,” he added.
Additionally, the results of previously relaxed export restrictions in 2014 were lackluster, according to Ogi, a former Japanese Ministry of Defense official at IOG. Many associate this result with Japan’s lack of experience in promoting defense products on international markets, he said.
The International Institute for Strategic Studies reported in May that since 2014, before Australia’s shipbuilding agreement, Australia had exported only three fixed air surveillance radars and one mobile air surveillance radar to the Philippines.
However, the biggest constraint may be production capacity. For decades, Japanese defense manufacturers primarily served one customer: the Self-Defense Forces.
This limited incentives to build export marketing teams, reduce unit costs, and invest in excess production capacity, even as the Japanese government increased defense spending.
Japan itself increased its defense spending by 9.7%, reaching $62.2 billion in 2025, equivalent to 1.4% of GDP, the highest share since 1958.
The country’s Ministry of Economy, Trade and Industry said in a February report that defense businesses are less attractive than private businesses because of low profit margins and limited growth potential. This has led companies to withdraw from this sector, the report added.
Still, IOG’s Ogi said lifting the arms embargo would also boost Japan’s production capacity by encouraging companies to produce weapons on a large scale in peacetime.
He said this would also strengthen Japan’s wartime readiness, as defense companies would not have to ramp up production as drastically if needed during wartime.
ICU’s Nagy said that in terms of stocks, traditional domestic leading companies stand to benefit the most from the lifting of the ban on exports of weapons. Mitsubishi Heavy Industries is the “anchor” of the industry, and Kawasaki Heavy Industries, IHI Corporation, and Mitsubishi Electric have the scale necessary for international procurement.
But other analysts were optimistic about the sector even before the ban on exports of lethal weapons was lifted. A November report from WisdomTree noted that Japan is “preparing to enter the export market in earnest.”
“For investors who believe in a multi-decade complex theme, Asian defense is not a deal. It is the frontier of defense investment for the next 20 years,” the report said.
