In response to dwindling orders to domestic contractors, Keidanren released a policy document warning of the collapse of Japan’s defense industry.

Shinzo Abe, then prime minister of Japan, visits the US for a Japan-US summit in 2019. Photo from the Prime Minister’s Office of Japan’s website.

In April 2014, the Shinzo Abe administration abolished Japan’s “three principles” which had prohibited arms exports — a long-held goal of Japan’s defense manufacturers. At last, the administration was giving them the preferential treatment they desired.

However, the US was still the Abe administration’s most important partner. After the second Abe administration came to power in December 2012, Japan began purchasing larger volumes of military equipment, such as fighter jets, from the US. The price tag more than tripled: from 104 billion yen in fiscal year 2013, to 379.1 billion yen in fiscal year 2017.

Japan’s defense imports from the US are carried out according to an agreement called the Foreign Military Sales (FMS) system. Under FMS, the US government decides the price, an unequal point in the agreement.

Take the F-35A fighter jet, for example. One jet cost 9.7 billion yen in 2012, but by fiscal year 2016 the price had risen by 60% to 15.7 billion yen.

Nevertheless, the Japanese government did not even to grasp the reason behind the price hikes.

“Japan should quantitatively identify the factors [determining the price] with the US government,” commented the Board of Audit of Japan, which checks whether taxpayers’ money is being used appropriately, regarding the price increases. It was referring to the total contract value for Japan’s purchase of F-35A fighters, which amounted to a hefty 445.6 billion yen.

In other words, the board was saying that Japan should stop wasting taxpayer money by following the US unquestioningly.

Keidanren claims Japan’s defense industry collapsing “from its very foundations”

In fact, as defense purchases from the US increased during this period, some of Japan’s military contractors were facing hard times. Mitsubishi Heavy Industries (MHI), the industry leader, is a representative example. As shown in the table below, total order value from the government was more than cut in half in just two years: from 453.2 billion yen in 2016 to 194.9 billion yen in 2018. Meanwhile, MHI’s donations to the ruling Liberal Democratic Party remained unchanged, at 33 million yen annually.

Keidanren stepped in to turn the situation around. In June 2018, it released a policy proposal titled “Toward the New National Defense Program Guidelines and the Next Medium Term Defense Program.”

“Japan’s domestic defense industry is being forced to reevaluate its business due to increasing defense equipment procurement from overseas, amid limited budgets,” the document stated.

“The current situation risks undermining efforts to improve productivity in Japan’s defense industry and hinders companies’ innovation to enhance defense equipment capabilities. It is no exaggeration to say that the very foundations of Japan’s domestic defense production and technological base are collapsing, threatening our national security,” it continued.

“Approporiate policy support must be provided to Japan’s defense industry, to ensure that it can secure adequate profits as a source of investment capital, just as our overseas competitors do. It is necessary to enhance the efficiency and resilience of domestic defense production and its technological base through encouraging companies to leverage their own capabilities, thereby contributing to Japan’s future security,” it appealed.

Keidanren had gone so far as to claim that “the very foundations” of Japan’s defense production system were “collapsing, threatening our national security.” After the Abe administration, Prime Minister Fumio Kishida would implement policies that fully recompensed Japan’s military contractors.

Top 10 companies receiving defense-related procurement orders from the Japanese government from 2016 to 2020.

The upper section shows order value, and the lower section shows donations from the company to the National Political Association (a political finance organization that handles corporate and group donations to the LDP).