Measures aimed at bolstering Japan’s sovereign defence industry capacity have received unprecedented focus in the 2026 Defense of Japan White Paper, which was published on 4 August.
It comes as Tokyo places growing emphasis on the role of defence production in the nation’s security, with Defence Minister Shinjiro Koizumi stating in a forward to the paper that the nation’s defence industrial and technological bases are an integral part of defence capability itself.
In line with this assessment, the Japanese language full report for the first time dedicated an entire 43-page section to addressing reforms to Japan’s defence industrial and technology base – a theme that had previously been addressed in shorter chapters.
The new section includes a long list of legislative and regulatory measures aimed at strengthening Japan’s industrial base. Among them were initiatives to increase procurement from domestic sources, improve company profit margins, enhance investment confidence and business predictability for smaller suppliers, and assist exporters.
In line with Tokyo’s tenet of bolstering Japan’s sovereign defence industry capacity, the White Paper listed six broadly defined situations under which the government will henceforth prioritise procurement from domestic suppliers.
Included in the list were equipment that needs to be catered to Japan’s unique geography and operational concepts, assets which will require sustained provision in a prolonged contingency, equipment which could be subject to supply constraints imposed by foreign governments, and a broadly defined category of equipment whose performance, life cycle cost and schedule restrictions etc. can be met by domestic technology.
Several measures were outlined to address recent assessments that low profitability had driven small and medium enterprises out of the industry, including the Ministry of Defense’s (MoD) adoption of a new method for calculating suppliers’ profit margins.
Japan’s MoD previously determined projected profit margins based on estimates of material, machining, operational and delivery costs, with an average projected margin of roughly 8 per cent between 2021 and 2024.
Industry figures had raised persistent criticisms of this system for problems including understating investment and compliance costs and failing to factor in inflation.
The industry response contributed to the 2025 formulation of the ‘Guidelines for Promoting Fair Subcontracting Transactions, etc. in the Defense Industry’ document.
The new system outlined in the White Paper employs QCD (Quality, Cost and Delivery) evaluations to determine a profit margin within a 5-10 range, as well as offering cost fluctuation adjustments of up to 5 per cent of the initial contract value.
The document, in addition, discussed support packages to assist defence suppliers to sustain sufficient rates of production.
In 2023, the government set up a fund to improve supply stability for critical defence equipment under the Act of Enhancing Defense Production and Technology Bases.
The fund has since been used by companies for measures including domesticating the supply of components, substituting discontinued parts, improving automation and upgrading decaying equipment etc.
According to the report the fund is increasingly being directed to SMEs as opposed to defence primes, with successful SME applicants increasing two thirds year on year (YoY) in 2025, where they made up 75 per cent of the total recipients, up from roughly one third in 2023.
The White Paper also announced that the government intends to improve business predictability for defence firms, and level out annual defence expenditure, by increasing the provision of longer-term contracts of up to 10 years under the Long-Term Contract Act, and improving the accuracy of cost estimates using big data.
The report also outlined government assistance initiatives for defence industry exporters – a sector that is expected to expand substantially following the loosening of restrictions on outbound defence equipment transfers announced by the government in April.
Among them were subsidies, delivered through the Defense Equipment Transfer Facilitation Fund, for costs incurred when the MoD asks suppliers to modify the performance and specification of equipment to protect sensitive Japanese technology.
Other initiatives for protecting sensitive Japanese technology included unspecified safeguards to prevent exported equipment from being reverse engineered.