Market Overview

Because of the recent trends in the neighboring countries, defense budgets have substantially expanded in accordance with the National Security Strategy and the National Defense Strategy of Japan. Meanwhile, a considerable number of private companies and organizations have been forced to withdraw from procuring the defense industry, because of huge cost burdens for maintaining the facilities and labor depending on the specification, despite few order frequencies and low profitability.
As a solution, there are moves for developing dual-use items and technologies, and proactively use the development outcome in the field of national security. This brings about reviewing of various laws, rules, regulations, and systems and planning of some revisions and launch of new R&D institutions.

We have surveyed the market of dual-use items and technologies in Japan in five areas, i.e., aerospace, information technology, sensing, automation, and manufacturing technology/component materials, with the market size estimated as 5,700 million yen for FY2023 (projection), based on the sales at businesses. Because of no major outcomes, the current market size remains relatively small.

Noteworthy Topics

Many Startups Participated in Joint Promotion Committee that Propels Dual-Use Items and Technology

Efforts had been made from before to proactively apply innovative technologies by the private sector to the national security realm, but only with major companies.

The Acquisition, Technology & Logistics Agency (ATLA) of Ministry of Defense (MoD) has addressed to increase the deals not only with existing partner companies but with SMEs and startups, aiming to enhance the defense industry base. One of such efforts is “Defense Industry Promotional Exhibition” held since FY2016, which enables business matchmaking and networking over promising technologies and products.
Since FY2023 the MoD and the Ministry of Economy, Trade and Industry (METI) have established a joint promotion committee for promoting startups in the defense industry and have formed frameworks for emerging companies to enter the defense industry. In response to this, many startups have participated in it, and many are in progress of business matchmaking and networking.

Furthermore, the government has referenced the status of utilizing dual-use items through Defense Advanced Research Projects Agency (DARPA) in the US and has announced the launch of a new R&D institution provisionally called the “Defense Innovation Technology Research Institute”, positioned as the Japanese version of DARPA. The institute will be operated by around 100 people from both the public and private sector, addressing dual-use technology development projects. The commencement of manpower applications for projects is planned in FY2024, with approximately tens or hundreds million yen per project being budgeted annually. While being allowed to some levels of failure as a Japanese-version DARPA, its purpose is to obtain short-term achievements in cutting-edge technology development, specifically in the areas of AI, unmanned vehicle/aircraft, quantum, etc.

Future Outlook

Foreseeing that regulations including the Foreign Exchange Law and the Three Principles on Defense Transfer of Defense Equipment and Technology may be reviewed and some outcomes in the promotions to develop dual-use items and technologies are likely to take shape, the next-generation dual-use item & technology market is forecasted to reach 60,900 million yen by FY2030.
The market is projected to grow furthermore to 150,700 million yen by FY2040. As the entire market is increasing, demand from private industry is expected to increase even more.

Research Outline