Japan is preparing to adopt a Defense Industrial Base Strategy by the end of 2026 to address whether domestic industry can keep the Self-Defense Forces supplied through a prolonged conflict, with Defense Minister Koizumi Shinjiro and Economy, Trade and Industry Minister Akazawa Ryosei meeting representatives of five major contractors on November 4. Koizumi called for reserve production capacity and a fundamental rethink of defense equipment policy.
The initiative comes as Tokyo confronts mounting security challenges involving China, North Korea and Russia, and as Russia's war against Ukraine has demonstrated how quickly sustained fighting consumes ammunition and military equipment.
The strategy has three priorities: sustaining defense capabilities, adapting to new forms of warfare involving drones and artificial intelligence, and creating a virtuous cycle between defense investment and economic growth. A central proposal is a government-backed organization linking defense manufacturers with the state, expected to take the form of an incorporated administrative agency. It would support domestic production, research and development, defense equipment transfers abroad, and startups developing dual-use technologies. The government aims to submit legislation during the ordinary Diet session in 2027, with the new organization potentially beginning operations in fiscal 2027.
Cooperation between the Ministry of Defense and the Ministry of Economy, Trade, and Industry is significant. Japan's defense procurement has traditionally centered on established prime contractors. Akazawa emphasized the importance of expanding industrial supply chains and utilizing civilian technologies for defense purposes.
Koizumi highlighted the state-owned, contractor-operated (GOCO) model, under which the state owns manufacturing facilities while private companies operate them. Japan's 2023 defense production legislation already allows the government to acquire manufacturing facilities and entrust their operation to contractors when other measures cannot secure supplies, and the forthcoming strategy could give that mechanism a broader role.
The central challenge is deciding who pays for production lines that must remain ready even when peacetime orders cannot sustain them. Under GOCO, much of that burden could fall on the government and ultimately taxpayers. Funding alone does not guarantee readiness: factories also need skilled workers, critical components, reliable suppliers, and the ability to expand output quickly.
Koizumi told a Diet committee on May 12 that Japan plans to acquire thousands of unmanned systems under SHIELD, its multilayered coastal defense initiative. By comparison, Ukraine plans to produce more than 7 million drones in 2026, while Russia is also targeting millions annually. The figures are not directly comparable, but they raise the question of whether Japan can sustain drone operations during prolonged military emergencies without a production system capable of rapidly replacing heavy losses.
A contingency in the Taiwan Strait or around Japan's southwestern islands could require prolonged operations across considerable maritime distances, putting pressure on ammunition stocks, repairs, and replenishment.
Koizumi also called for developing defense equipment with overseas markets in mind. Foreign orders could help manufacturers sustain larger production runs, lower unit costs, and strengthen supply chains. Tokyo has already loosened restrictions on defense exports: in April 2026 it removed longstanding limits that had generally confined exports of completed defense equipment to five nonlethal categories, and that same month Australia signed contracts for the first three of 11 planned upgraded Mogami-class frigates. However, exports cannot eliminate the need for publicly financed preparedness, since foreign contracts create delivery obligations of their own and raise questions about how Japan would prioritize overseas customers and its Self-Defense Forces during military emergencies.
The industrial strategy is being developed alongside the Takaichi Sanae administration's revision of Japan's three key national security documents. The current defense buildup program allocates about 43 trillion yen ($272 billion) for fiscal years 2023-2027, and Reuters reported that the government is considering 70 trillion to 80 trillion yen for fiscal years 2027-2031, although no final decision has been made. On November 5, Japan's Finance Ministry warned against financing increased defense spending through new government bonds, underscoring the fiscal constraints facing Tokyo.
Analysis
Why This Matters
- The strategy determines whether Japan's armed forces could keep fighting after stockpiles run out, the very test Russia's war in Ukraine has posed to sustained combat.
- The split between public financing and export earnings will shape Japan's defense industry and its ties to buying partners such as Australia, while lethal-weapons exports remain politically sensitive at home.
- Japan is trying to close a drone-production gap against Ukraine and Russia, which are each targeting millions of units a year, while Tokyo plans thousands under its SHIELD initiative.
Background
Japan has been running a major defense buildup since 2022 under a program allocating about 43 trillion yen for fiscal 2023-2027, with 2023 legislation already permitting the state to own manufacturing facilities and entrust their operation to contractors. Procurement has traditionally centered on a small group of prime contractors, and restrictions on exporting completed defense equipment were first loosened in April 2026. The new industrial strategy is being drafted alongside a revision of Japan's three key national security documents.
Key Perspectives
Koizumi Shinjiro, Defense Minister: called for maintaining reserve production capacity for military emergencies, highlighted the state-owned, contractor-operated model for preserving factories, and wants defense equipment developed with overseas markets in mind.
Akazawa Ryosei, Economy, Trade and Industry Minister: emphasized the importance of expanding industrial supply chains and utilizing civilian technologies for defense.
Japan's Finance Ministry: warned on November 5 against financing increased defense spending through new government bonds, citing fiscal constraints.
What to Watch
- Whether the government finalizes a 70 trillion to 80 trillion yen defense budget for fiscal 2027-2031, as Reuters reported is under consideration, and how it is funded.
- Legislation for the new state-backed industrial organization, which the government aims to submit in the ordinary Diet session in 2027.
- How broadly the strategy applies the GOCO arrangement to preserve production lines that peacetime orders cannot sustain.
Checked
12 claims in this story checked against 1 source: 11 supported.
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- SupportedJapan is preparing to adopt a Defense Industrial Base Strategy by the end of 2026 to address whether domestic industry can sustain the Self-Defense Forces through a prolonged conflict.The Diplomat: “Japan is preparing to adopt a new Defense Industrial Base Strategy by the end of 2026, broadening its defense buildup to address a critical question: whether domestic industry can sustain the Self-Defense Forces through a prolonged conflict.”
- Partly supportedThe summary presents a state-backed agency and overseas transfers as features of the strategy.The Diplomat: “A central proposal is a government-backed organization linking defense manufacturers with the state. Expected to take the form of an incorporated administrative agency, it would support domestic production, research and development, defense equipment transfers abroad, and startups developing dual-use technologies.”
- SupportedKoizumi called for reserve production capacity.The Diplomat: “Koizumi called for maintaining reserve production capacity for military emergencies and fundamentally rethinking Japan’s defense equipment policies.”
- SupportedKoizumi and Akazawa met representatives of five major defense contractors on November 4.The Diplomat: “On November 4, Defense Minister Koizumi Shinjiro and Economy, Trade, and Industry Minister Akazawa Ryosei met at the Ministry of Defense with representatives of five major defense contractors”
- SupportedKoizumi called for a fundamental rethink of Japan’s defense equipment policy.The Diplomat: “Koizumi called for maintaining reserve production capacity for military emergencies and fundamentally rethinking Japan’s defense equipment policies.”
- SupportedThe strategy has three priorities: sustaining defense capabilities, adapting to new forms of warfare such as drones and AI, and linking defense investment with economic growth.The Diplomat: “The emerging strategy has three priorities: sustaining defense capabilities, adapting to new forms of warfare involving drones and artificial intelligence, and creating a virtuous cycle between defense investment and economic growth.”
- SupportedThe proposed organization would be an incorporated administrative agency supporting production, research and development, transfers abroad, and dual-use startups.The Diplomat: “Expected to take the form of an incorporated administrative agency, it would support domestic production, research and development, defense equipment transfers abroad, and startups developing dual-use technologies.”
- SupportedThe government aims to submit legislation in the 2027 ordinary Diet session, and the organization could begin operating in fiscal 2027.The Diplomat: “The government aims to submit legislation during the ordinary Diet session in 2027, with the new organization potentially beginning operations in fiscal 2027.”
- SupportedJapan’s 2023 defense production legislation allows the government to acquire manufacturing facilities and entrust their operation to contractors when other measures cannot secure supplies.The Diplomat: “Japan’s 2023 defense production legislation already allows the government to acquire manufacturing facilities and entrust their operation to contractors when other measures cannot secure supplies.”
- SupportedUnder GOCO, much of the cost of maintaining reserve production capacity could fall on the government and taxpayers.The Diplomat: “Under GOCO, much of that burden could fall on the government and ultimately taxpayers.”
- SupportedJapan plans to acquire thousands of unmanned systems under SHIELD, while Ukraine plans to produce more than 7 million drones in 2026 and Russia is targeting millions annually.The Diplomat: “Japan plans to acquire thousands of unmanned systems under SHIELD, its multilayered coastal defense initiative. By comparison, Ukraine plans to produce more than 7 million drones in 2026, while Russia is also targeting millions annually.”
- SupportedIn April 2026, Japan removed longstanding limits that had generally confined exports of completed defense equipment to five nonlethal categories.The Diplomat: “In April 2026, Japan removed longstanding restrictions that had generally confined exports of completed defense equipment to five nonlethal categories.”