Japan's recent decision to ease long-standing restrictions on arms exports presents significant opportunities for its defense industry, particularly as global military spending reached a record $2.89 trillion in 2025, marking the 11th consecutive year of growth.
This surge in military expenditure indicates a heightened demand for weapons, including air defense missiles and armored vehicles, which Japan is well-positioned to supply.
Hirohito Ogi, a senior research fellow at the Institute of Geoeconomics, noted that countries are increasingly desperate for these defense capabilities, especially in light of ongoing conflicts such as the Russia-Ukraine war and tensions in the Middle East.
Japan's defense sector could take cues from South Korea, which has successfully produced arms that are cheaper and of comparable quality to U.S. offerings.
Stephen Nagy, a professor at the International Christian University, highlighted Japan's engineering prowess, particularly with the development of the next-generation Global Combat Air Programme fighter jet in collaboration with Britain and Italy, which is set to replace existing aircraft in those countries and Japan.
Japan's immediate export opportunities are likely to focus on areas where it has established technological strengths, such as advanced radar systems and patrol vessels. Recent contracts, including Australia's order for frigates based on Japanese designs, and interest from countries like Indonesia and the Philippines, underscore the growing foreign demand for Japanese defense products.
However, challenges persist, including a lack of international marketing experience and cost-competitiveness among Japanese firms. Past attempts to export defense products have yielded limited results, with only a few radar systems sold since 2014.
Additionally, Japan's defense manufacturers have historically catered primarily to domestic needs, which has hindered their ability to scale production and compete internationally. Despite these hurdles, the lifting of the arms export ban is expected to enhance Japan's production capabilities and wartime readiness.
Analysts suggest that major players like Mitsubishi Heavy Industries and Kawasaki Heavy Industries are likely to benefit the most from this policy shift.
A report from Wisdomtree indicates that Japan is preparing to enter the defense export market more seriously, positioning itself as a key player in the Asian defense sector over the next two decades, which could be an attractive opportunity for investors