Electronics, Heavy Industry Firms Expand Workforces, Boost Capital Spending on Back of Govt Defense Budget Rise

By Miyabi Endo and Chika Nakakyama / Yomiuri Shimbun Staff Writers

10:49 JST, January 11, 2026

With the government’s defense budget on the rise, manufacturers specializing in defense materials, including radar and missiles, are expanding their workforces and increasing capital expenditures across their divisions.

Companies are anticipating that orders will expand further, driven by the government’s five-year plan for a substantial defense budget increase, starting in fiscal 2023, and the inauguration of Prime Minister Sanae Takaichi, known for her proactive stance on defense policy.

With active overseas expansion, defense-related business is evolving into a growth sector.

Contract value tripled

At an investor briefing held by NEC Corp. in November, Executive Officer Hiroyuki Nagano, who oversees the company’s aviation, space and defense business, was optimistic that orders would expand.

“The fields the Defense Ministry is prioritizing — space, cyber and electromagnetic warfare — are right in our wheelhouse. Should the government heavily invest in these areas, it will lead directly to an increase in our market share,” he said.

NEC has strengths in defense systems and wireless communications, and one of its core businesses is submarine communication cables, which are vital for national security.

The value of the firm’s contract with the Acquisition, Technology and Logistics Agency was recorded as ¥311.7 billion in fiscal 2024 — a nearly threefold increase from the fiscal 2022 figure.

Having previously set a plan to increase its defense business workforce by 1,200 from the fiscal 2020 level before the end of fiscal 2025, the company has now announced a policy to raise that goal, aiming for a total increase of 1,600 personnel.

The company also plans to expand its defense-related production facilities by 50,000 square meters by the end of fiscal 2025.

Government policy

In the Defense Buildup Program decided at the end of 2022, the government set a policy of increasing the total defense expenditure for fiscal 2023–2027 to ¥43 trillion, about 1.5 times the amount for fiscal 2019–2023.

This is a tailwind for companies that receive orders for equipment from the agency.

“When I joined this company, I didn’t even know we were involved in the defense business, but now the situation has dramatically changed to the point where we heavily promote it externally,” said a senior official at one manufacturer.

The fiscal 2025 supplementary budget, the first to be compiled under the Takaichi administration, allocates about ¥1.1 trillion to security-related costs, which encompass defense expenditures. The government’s goal of raising defense spending to 2% of gross domestic product has been achieved two years ahead of schedule.

Eisaku Ito, president of Mitsubishi Heavy Industries Ltd., which manufactures fighters and naval vessels, stated at a press conference in November: “The government’s policy is to prioritize the defense sector. As requests from the government intensify, we anticipate a corresponding increase in our orders.

”Defense business sales, which stood at about ¥500 billion in fiscal 2023, are projected to double to the ¥1 trillion level by fiscal 2026. Concurrently, the company plans to boost its workforce by 40%.

Mitsubishi Electric Corp. aims to achieve defense business sales exceeding ¥600 billion by fiscal 2030 — a fourfold increase from fiscal 2023. To underpin this goal, the company will sequentially build eight new factories starting in 2025.

Profit margins up

In the past, many companies pulled out of the defense industry because they could not anticipate returns commensurate with the massive investments required.

The profit margin for companies engaged in defense business has traditionally been low at around 8%. The Defense Ministry is advancing efforts to raise this to a maximum of 15% by adding profits in response to companies’ efforts, like shorter delivery times.

“There are many companies in the United States that achieve profit margins of around 20%,” Nagano said.

To enhance profit margins, companies are promoting dual-use technologies — which can be leveraged by both military and civilian sectors — and are driving expansion into overseas markets.

Toshiba Corp., which formed a defense new business expansion promotion division in April to handle the overseas deployment of equipment, has developed a system capable of detecting, tracking and capturing suspicious drones.

The system is being proposed for airports, nuclear power plants and in Self-Defense Forces base security.

“As global demand for defense business strengthens, Japanese companies need to accelerate overseas expansion to win in international competition,” Prof. Heigo Sato of Takushoku University said.