A display of the next-generation GCAP Tempest stealth fighter at the Farnborough International Airshow in England on July 21, 2026. ©AFP/Toby Shepheard
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For almost eight decades, Japan effectively barred itself from selling weapons abroad. As Tokyo dismantles restrictions once seen as untouchable, its defense industry is being pushed onto the global stage—with implications for supply chains, alliances, and the balance of power from the Indo-Pacific to Europe.
In the view of Dr. William Chou, Japan's April 2026 revision to its defense equipment transfer rules is not a sudden reversal of postwar restraint—it is the latest step in a trend that has been building for over a decade.
"No doubt it's a pivot from post-war restraint," said Chou, senior fellow and deputy director of Hudson Institute's Japan Chair, in an interview with Japan Forward.
He traced the change back to Japan's 2015 decision to permit collective self-defense, and argued that Russia's invasion of Ukraine accelerated a broader public readiness for "a more realistic approach to foreign policy."
Chou was careful to frame the April revision as pragmatic rather than radical. Amending Article 9 of the Constitution remains politically out of reach, he said. The postwar clause renounces war and has long been interpreted by the government as limiting Japan to self-defense.
Instead, the export reform is designed to push Japanese defense manufacturers to build capacity, innovate, and respond to what foreign militaries actually want, rather than relying solely on the domestic defense budget.
It has a strategic dividend too, Chou noted: added industrial capacity that Japan could draw on in a future contingency.
"I think it's a significant shift, but it's a big shift along the lines of a larger trend that we've been seeing for the past ten or eleven years," he said.
That reorientation is not one the Japanese public has fully embraced. A joint Sankei Shimbun-FNN poll conducted March 14-15 found 58.5% of respondents opposed to the government's plan to permit exports of lethal-capable equipment under certain conditions, against 41.5% in favor.
The split ran sharply along gender lines: 70.5% of women were opposed, while men were narrowly supportive, with 52.2% in favor and 45.7% opposed. Opposition ran close even within the ruling Liberal Democratic Party's own support base, where 52.9% favored the policy against 44.4% opposed.
Gaps Between Policy and Practice
Loosening the rules is one thing; building an export business is another. Chou pointed to a familiar list of obstacles: unfamiliar markets, thin personnel, and a certification and after-sales infrastructure that barely exists yet.
Japanese defense primes, he said, are "breaking into new territory" and will need years to build the relationships—with foreign defense ministries, acquisitions staff, and militaries—that export success depends on. He linked Japan's failed 2016 submarine bid to Australia partly to this lack of on-the-ground understanding.
Staffing is a deeper problem. Defense divisions within Japanese conglomerates have traditionally been under-resourced, Chou said, bluntly noting they were "not the sexiest part of the business." Sending scarce, language-capable staff abroad to support exports to markets like Australia or the Philippines only stretches that thin bench further.
After-sales support and spare parts pose a related challenge. Japanese industry has built its reputation on predictable, steady domestic production, not the "much more variable rates of demand" that accompany foreign militaries.
Suppliers, too, may struggle to adapt to operating in unfamiliar business cultures—a concern Chou said has already come up in conversations about Japanese firms potentially expanding production in the United States.
Certification is the last piece. Chou pointed to South Korea as a model of a country that has worked methodically with European customers to make sure its equipment meets their standards. "Selling what others want at the right price on time," he said, will require market research, capacity building, and adaptation of Japan's own procurement practices to global norms.
Where Japan Has an Edge—and Where It Doesn't
Asked where Japanese contractors stand relative to American, European, or South Korean rivals, Chou first pointed to design.
The Mogami-class frigate, being exported to Australia and eyed by other Pacific nations, requires a smaller crew. This is a feature born of Japan's own recruitment shortfalls in the Maritime Self-Defense Force, but one that resonates with militaries elsewhere facing the same problem.
Japan's reputation for on-time delivery, he added, citing its submarine program in contrast to the US Navy's own production delays, together with a broader postwar reputation for manufacturing quality, gives it a real advantage.
What remains unproved is scalability. While Mitsubishi Heavy Industries can build submarines at a steady pace, Chou said it remains unclear whether Japanese defense contractors can "scale and meet sudden demand" and eventually lower costs. For now, he said, potential customers would be taking a "wait-and-see" approach.
The SME Squeeze and a Bet on Physical AI
Furthermore, small and mid-sized manufacturers—vital to the defense supply chain—are being squeezed from multiple directions at once: labor shortages, a wave of firms with no heir to take over, and long-standing profitability pressures worsened by exchange-rate swings. "That is a real key area of vulnerability for the Japanese," he said.
Labor shortages extend to large firms as well, which Chou linked to growing government and industry interest in physical AI as a long-term fix for Japanese manufacturing generally, defense included.
He cited Kawasaki Heavy Industries' agreement with Nvidia to develop such technology for shipbuilding as evidence of where Tokyo hopes the sector is headed, noting the inclusion of physical AI among the Takaichi government's 17 strategic sectors. How quickly the technology can actually be deployed, he acknowledged, remains an open question.
When Security Becomes Everyone's Business
Chou's account of a defense industry racing to catch up is only part of the picture, according to Takashi Okabe. A Partner at Control Risks, a global geopolitical and security risk consultancy, he advises Japanese companies on geopolitical risk and economic security.
In his view, the more significant transition isn't happening inside the defense industry, but in how ordinary Japanese companies now think about risk and make management decisions, Okabe said in an interview with Japan Forward. "That change isn't necessarily showing up as companies entering the defense industry or expanding defense-related business. More often, it's appearing as a response to economic security in the broader sense."
Questions once left to specialists or defense contractors, he said, are now standard boardroom concerns. Companies are asking whether supply chains are overly dependent on a single country or region, and whether critical technology and intellectual property are properly safeguarded.
They're also weighing whether their own products could be diverted, unintentionally, to military end uses, and how geopolitical tension might affect business continuity and investment plans.
He pointed to reports that Japanese-made civilian components have turned up in weapons and drones used in Russia's war against Ukraine.
Okabe was careful to frame this as a story of expanding opportunity as much as expanding risk. As countries prioritize economic security, he said, the strategic value of fields where Japanese firms are strong has only grown, alongside the compliance and technology-management burdens now expected of them.
The reason defense and economic policy have become so intertwined in Japan's case, Okabe argued, is structural rather than circumstantial.
"Japan is neither a resource power nor a military power," he said. "It has built its international competitiveness on technological strength and manufacturing, so its security has always been closely tied to its economy, industry, and supply chains."
Unlike the United States, he noted, Japan's defense equipment is largely supported by companies whose primary business is civilian, leaving the line between defense and civilian industry comparatively blurred. Discussing Japan's security, in other words, inevitably becomes a discussion about private industry.
The Crisis-Management Investment Opportunity
Tokyo's expanding investment in security-adjacent sectors is not simply a cost, but a potential source of growth. Okabe noted that historically, security-driven competition has often accelerated technological innovation, pointing to the internet, radar, GPS, and even the microwave oven.
One area he flagged as worth watching is counter-drone technology. The threat, he said, extends well beyond battlefield attacks to include aerial surveillance, communications jamming, signal interception, incursions into no-fly zones, and disruptive erratic flights near critical infrastructure—opening up new markets for related technologies.
But Okabe argued that the more fundamental challenge for Japanese companies is not preventing crises but adapting when they occur. While they have long built sophisticated risk-management processes, he said, what increasingly matters is how they respond when those plans break down.
"Everyone has a plan until they get punched in the face," he said, citing Mike Tyson's famous remark, and arguing it applies just as much to corporate crisis management as to boxing.
Resilience is becoming a genuine competitive advantage, he said—the ability to sense early signs of trouble, make decisions in the gray zone between peacetime and crisis, adapt as a situation changes, and recover operations afterward.
Foreign Investors Are Circling
Chou said interest from abroad is more than talk, though the reality still lags the rhetoric. He pointed to Japanese defense firms being undervalued relative to their quality, with businesses diversified across commercial and defense applications, giving investors opportunities beyond the defense sector.
On the institutional side, he cited last October's inaugural NATO-Japan defense industrial cooperation forum and April's Japan-EU defense industry dialogue as early, still-informal steps.
He contrasted this with South Korea's more advanced footing—Seoul has struck distinct cooperation agreements with NATO across eleven sectors.
"Japan is at the start of this journey," Chou said, but the volume of European delegations visiting Tokyo, and Japanese industry representatives increasingly shuttling between Brussels and other European capitals, points to real appetite on both sides. "Fundamentally, Europe needs more defense articles," he said. "I think Japan is a very viable candidate."
Okabe described a similar pivot from the other side of the table: how foreign companies and investors now see Japan.
"Japan's position, as seen by foreign companies, is changing from an important market to a strategic partner," he explained, pointing to joint development and technology tie-ups, collaboration in semiconductors and advanced materials, and Japan's use as a springboard into the wider Indo-Pacific market as areas of growing interest.
He also noted a shift in what foreign partners value: "There's a growing tendency to prioritize reliability and technological strength over cheapness," reflected in Japan's deepening security and economic-security cooperation with the United Kingdom.
The UK, he said, brings strength in finance, R&D, and global business development, while Japan brings precision equipment, electronics, and manufacturing technology, complementary strengths rather than competing ones.
That premium on reliability runs in both directions, Okabe cautioned. Just as foreign partners value Japan for its reliability, Japan expects the same from them. For foreign companies entering Japan, that means navigating export controls, investment screening, restrictions on technology transfer, and demanding information-security requirements—on top of a notoriously cautious corporate decision-making culture.
Increasingly, he said, what Japanese partners want isn't just superior technology, but proof that a foreign firm can be trusted to protect sensitive technology and information.
GCAP: The Test Case
Chou pointed to the Global Combat Air Programme (GCAP)—Japan's joint sixth-generation fighter project with the United Kingdom and Italy—as the clearest signal of how far Tokyo is willing to go, after talks with Lockheed on a similar collaboration fell through.
He described GCAP as symbolic of shared intellectual property, integrated supply chains, and aligned industrial standards among the three partners. Furthermore, he noted growing interest from Poland and Canada, partly a byproduct of struggles around the French-German Future Combat Air System.
Chou also framed GCAP in terms of longevity. Platforms like this typically remain in service for over 30 years, becoming a foundation for future technology cooperation, much like the F-15, now 50 years old, which continues to be upgraded.
The open question, he said, is political and budgetary rather than technical—whether Italy, the UK, and Japan can fund and procure the aircraft at the volume and pace needed to make it work, particularly given recent turmoil around the UK's own defense posture, underscored by its defense minister's resignation months ago.
Countering the 'Remilitarization' Narrative
Asked about Beijing's framing of Japan's shift as "new militarism," Chou said he sees little evidence that the narrative has gained traction internationally, aside from a passing reference in a report from the office of former US Director of National Intelligence Tulsi Gabbard.
The more tangible risk, he said, is Beijing's use of the same rhetoric to justify dual-use export restrictions that could eventually affect Japan's ability to source components for its own hardware.
His recommended response was restraint: address supply-chain vulnerabilities quietly, and if addressed publicly, frame it around resilience—ideally through a G7 lens—rather than answering China directly. "Japan would be best avoiding the Streisand effect in terms of Chinese nonsensical claims," he said.
What It Means for the Indo-Pacific and Europe
On whether Japanese exports stabilize the Indo-Pacific or risk feeding an arms race, Chou argued that China's own military buildup is proceeding regardless of what Japan or other middle powers do, pointing to the rapid growth of its nuclear arsenal and navy.
Arming partners like the Philippines, Indonesia, and Australia, in his view, mainly helps by aligning them with Japan and NATO standards—India, he suggested, would deepen Quad-adjacent cooperation with Japan through defense purchases, even though the Quad itself is not a military alliance.
For Europe, Chou pointed to South Korea's success supplying interceptor missile systems that operate alongside American Patriot and SM-3/SM-6 systems as a model—evidence that Europe, even as it invests in its own defense, will need multiple outside suppliers to fill capability gaps.
"I see no reason," he said, "why Japan can't also partner with Europe and sell to Europe to help them fill out their full spectrum of potential defense needs."
What to Watch Next
For Japan, Okabe argued, the real test is whether they can treat this change not as a new constraint but as a moment when its technology and competitiveness are being revalued—shifting the emphasis, after decades of prioritizing efficiency and cost, toward quality, reliability, and resilience as genuine competitive advantages.
For foreign investors, he said, Japan is becoming less a market to source from cheaply and more an access point to trustworthy technology and industrial infrastructure—a transition from "hub of efficiency" to "hub of trust" that, he said, deepening UK-Japan cooperation already reflects.
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Author: Daniel Manning
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