BMI's Executive Summary

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Japan's internal and external security situation did not change significantly in Q407, with Japan facing a range of strategic uncertainties. Much of this stems from the country's evolving security identity and the strategic role it will play in the Asia Pacific. Japan's re-evaluation of its security identity has been prompted by changes in government, as well as external factors. For the last six years it has been led by Koizumi and Abe, leaders that are known for their strong nationalist tendencies. However this trend may be reversed in 2008 after Yasuo Fukuda was chosen in Q407 to lead the Japanese government. One of the first key policy pledges made by Fukuda was to strengthen ties with East Asia, with a focus on North East Asia. Prime Minister Fukuda also noted that Japan would extend the Maritime Self Defence Force's (MSDF) deployment in Afghanistan. These commitments suggest that for now, Japan will be as committed to strengthening strategic ties in the Asia region, as well as maintaining its commitment to the West.

In the first quarter of 2008 the Japanese Ministry of Defence (MoD) requested a 0.74% increase for the 2008 budget, at US$41.427bn. If the budget is approved, the defence budget will reach 1% of the country's GDP and approximately 5.6% of the estimated total 2008 budget. This is a distinct shift away from previous budgets which have hovered around the 0.8% of GDP mark. Moreover, expenditure patterns have not changed dramatically, with procurement only receiving some 20% of the total defence budget and personnel costs accounting for up to 45% of the defence budget.

The Japanese defence industry, officially part of the heavy industries, is dominated by giants such as Mitsubishi. The industry's unique structure is underpinned by Article 9 in its Constitution, which prohibits Japan from having a fully developed armed force and defence industry However, there are likely to be substantial changes in the coming quarters as indicated by the shifts in Japan's diplomatic position. The government is moving forward with plans to produce the PAC-3s missiles indigenously at the cost of JPY10bn, with Mitsubishi Heavy Industries (MHI) initially awarded the contract in 2005 to produce the PAC-3s missiles. In the fourth quarter of 2006, BMI's arms exports forecast for Japan remained unchanged, with Japan importing more arms.

Contents

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Chapter 1 - Executive Summary

Security

Defence Industry

Military Expenditure

Arms Trade

Chapter 2 - SWOT Analysis

Japan Security SWOT

Japan Defence Industry SWOT

Japan Economic SWOT

Japan Political SWOT

Chapter 3 - Political Overview

Domestic Political Outlook

External Political Situation

Chapter 4 - Security Risk Analysis

BMI’s Security Ratings

Table: Japan Regional Security Ratings

Table: Japan State Terrorism Vulnerability Index

Regional Security: North And South-West Asia Q406

Overview

Inter-State Conflicts

Internal Conflicts

Japan Terrorism Risk Ratings

Japan Physical Safety Risk Ratings

Japan Conflict Risk Ratings

Chapter 5 - Security Overview

Internal Security Situation

Table: Japan Non State Armed Groups

External Security Situation

Territorial Disputes

United States-Japan Relations

Relations With North Korea And China

Chapter 6 - Defence Industry

Armed Forces

Normalisation Of Japan’s Defence Forces

Defence Budget

International Deployments

Table: Japan Regional Comparisons

Weapons Of Mass Destruction

Chapter 7 - Market Overview

Table: Japan R&D Trends

Industry Trends & Developments

Chapter 8 - Competitive Landscape

Table: Key Players – Japan Defence Sector

Procurement Trends & Developments

Chapter 9 - Industry Forecast Scenario

Army Enlargements

Table: Japan Defence Sector – Historical Data & Forecasts

Government Defence Expenditure

Chapter 10 - Macroeconomic Forecast

Slower First Quarter But Economy Still on the Up

Table: Japan – Macroeconomic Forecasts

Chapter 11 - Company Profiles

Mitsubishi Heavy Industries (MHI)

Kawasaki Heavy Industries (KHI)

Ishikawajima-Harima Heavy Industries (IHI)

Fuji Heavy Industries (FHI)

Chapter 12 - BMI Forecast Modelling

How we generate our industry forecasts

Defence Industry

Sources

Competitive Landscape for Asia Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Asian Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: