Understanding the Japanese defence market

This year is critical for Japan’s defence outlook with significant changes expected in the ministry. 

In August 2022, Japan proposed a new defence budget with an increase to the highest level in history of over 5.5 trillion yen ($61.2 billion).

Japan typically spends around 1 per cent of gross domestic product on defence, however, this is likely to push the percentage higher to almost 2 per cent. 

The decision on defence spend is likely to occur in December this year, but one thing we know for sure is Prime Minister Fumio Kishida is dedicated to “fundamentally reinforce Japan’s defence capabilities in the next five years” and is considering “every option”. 

Japan’s three key defence documents — the National Defense Program Guidelines, Medium Term Defense Program and National Security Strategy — are all being reviewed this year with major changes expected.

These changes present opportunities for Australia’s defence market. But engaging with Japan in business takes careful consideration and planning. 

Our island nations 

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Australia is like Japan in many ways and this works as an advantage in business. 

Our geography is similar, we are both island nations. Protection of our sea and air space is critical to our physical security. 

As we are close in geographical proximity and in the same region, our threats and concerns are alike. Instability in the region affects us both.  

We also share a strategically important alliance with the US.  

Importantly, our cultural values are shared, with both countries committed to democracy, the rule of law and human rights. 

We have much to offer one another in the defence realm. An advantage for cementing this relationship is our successful history in business and our reputation. 

Japan describes Australia as their most important strategic partner after our shared ally, the US.

100-plus years of cooperation

Australia and Japan’s business relationship began in the late 1800s with Australia exporting wool and coal to Japan. Japan also sent workers to Australia as pearl divers and cane cutters in the early 1900s. 

After World War II, the business relationship reignited with fervour with the signing of the 1957 Commerce Agreement and the 1976 Basic Treaty of Friendship and Cooperation (NARA Treaty) increased cultural understanding. 

Today, Japan is Australia’s third largest trading partner. Australia provides Japan with high quantities of natural gas, coal, iron ore and concentrates, beef and copper ore and concentrates. 

In January 2022, the RAA (Reciprocal Access Agreement) was signed to further enhance cooperation between Australia’s Defence Force and Japan’s Self-Defense Forces (JSDF).

Defence Minister Richard Marles met with previous and current Japanese ministers of defense this year to further cement the commitment for collaboration.

Now, with Prime Minister Kishida’s recent visit to Australia, and the signing of the Joint Declaration on Security Operation, the ties between our two nations are closer than ever before. 

The focus of our cooperation is in defence, intelligence-sharing, energy transition, maritime security, cyber security and cyber resilience.

Cyber for one, is an especially important part of Japan’s security strategy with tax incentives considered for companies who can help boost the country’s cyber security to protect sensitive information. 

Cultural constraints

Despite the opportunities for business, there are some considerations Australians need to understand and prepare for before engaging.

Japan has an increasing aging population. There is a lack of growth in salaries and a heavy reliance on government support in healthcare. The healthcare system is a key strain on the Japanese economy with the government looking hard at steps to reduce this burden. 

This includes investment in greater domestic development of drugs and ongoing pushes for greater penetration of generics. Therefore, healthcare is a major priority for Japan.

Because of the older generations still in management roles and less young people coming up the ranks, business practices continue to face long and slow bureaucratic processes that despite the efforts of younger generations, continue slow decision making. Patience is required.

The Japanese government is making steps to address the gender imbalance in management roles with an aim to increase female participation from 15 per cent to 30 per cent sometime in the next eight years.

Overcoming hurdles

Trust is paramount in Japan. Time must be spent gaining trust and building relationships before business can occur. The value of relationships cannot be underestimated. 

Development of this trust will come from understanding challenges faced by Japanese partners both internally and externally in their businesses. 

While a shared vision will be a catalyst for development of the relationship, cooperation to overcome domestic business and political challenges and working in unison will be the key ingredients for a long-term and mutually beneficial relationship.

Don’t be KY

It’s necessary to earn respect. This includes wading through the social niceties and gaining the ever-important skill of KY (kuuki yomeru) which means to “read the air” — know what to say, when to say it and pick your battles. 

No one wants to be labelled KY or even worse, SKY (super kuuki yomeru), which means you are unable to read the atmosphere or social cues.

Japanese language skill goes a long way in driving this forward, however, is not the deal-breaker it once was.

Japanese businesses will be relieved to communicate in Japanese. However, they will also be happy to have a mix, as this helps avoid misunderstanding and miscommunication. 

Usually, translators are present in important meetings irrelevant of language skills to ensure all nuance is properly interpreted.

Partnerships are key. Investment in local partnerships and representation with tailored information is a start to a successful market entry. 

Thorough research into Japan’s defence requirements means you can promote a product which is defined as “required” in Japan and puts you a step ahead.

Market opportunities

Japan is heavily focused on identifying opportunities for the future development of business and industry. 

This includes investment through government initiatives such as the New Energy and Industrial Technology Development Organization (NEDO) through to increased Defence spending. 

Despite the JSDF historically preferring local equipment, they are now spending a higher amount on foreign systems, including non-US systems.

However, the progress of development in Japan faces some key challenges. One key area where Japan is focused on and needs additional evolution is supply chain. 

With the explosion of hydrogen power solutions, for example, the challenges of supply chain have become increasingly evident, mimicking the infrastructure challenges faced for wider adoption of battery electric vehicles (BEV) in the market. 

As Industry Minister Ed Husic recently announced, Australia has the resources for a strong battery manufacturing industry. This could be a target area Japan is heavily interested in.

As Japan continues to battle space and cost challenges in future developments, this presents opportunities for partner nations to help manage hurdles to facilitate stronger growth.

There are opportunities in technical collaborations, especially in the areas of IT and AI. 

Also domestically, Japan has limited capability for military operational training, whereas Australia has great strength in this. This will provide a tangible opportunity to deepen the defence relationship through a service. 

Getting into the market

If you’re interested in navigating the Japanese market, here are a few options to get the ball rolling and find useful information to get you started: 

• Register with a trading house that represents Australian companies in Japan such as Kanematsu, Marubeni, Mitsubishi Corporation, Mitsui & Co or Sumitomo Corporation. Austrade can facilitate introductions and provide initial advice. 
• Join industry associations or as a minimum, subscribe to their news: the Australian Japan Business Co-operation Committee, the Australian and New Zealand Chamber of Commerce in Japan, International Security Industry Council Japan, the Australia Japan Business Council (WA) and JETRO (Japan External Trade Organization).
• Attend Defence industry events in Japan such as DSEI Japan (15-17 March 2023) and the Japanese International Aerospace Exhibition 2024. 

Shey Dimon is a senior consultant for Lunik, a strategic communication and bipartisan public affairs firm. Lunik operates in Canberra, Melbourne, San Francisco and Tokyo. Lunik provides strategic advice for companies worldwide with an interest in Australian politics and government affairs. Dimon has worked in communication for 19 years and holds a degree in International Communication from Macquarie University. Dimon is director of her own consultancy, Nish Communications and is the founder of the Japan travel advisory Perfect 47 Japan.

Christopher Brennan is co-founder of MCIB Partners Inc, a Tokyo-based strategic intelligence and advisory business. Chris has spent more than 25 years in Japan and provides strategic advice to both domestic companies exploring new opportunities outside of Japan and multinational players interested in entering or expanding their presence in Japan. With cross industry coverage for both inbound and outbound businesses, Brennan has developed a strong network over the years in addition to an in-depth understanding of the Japanese market and how best to support navigation of its intricacies across industry segments. Brenann holds a MAs (strategic studies) from the ANU.