Investor's Business Daily November 13, 2006
Japan Raising Military Spending, Which Might Benefit U.S. Firms
By Doug Tsuruoka
Japan is acquiring a taste for guns over sushi. The country churns out $20 billion worth of arms annually — about what 127 million Japanese spend each year on sushi.
But North Korea's nuke tests rattled Japan. And the country's new prime minister has long favored a stronger military. So after years of flattish budgets, Japan seems set to ramp up military outlays, which might benefit U.S. defense giants.
"It's clear the Japanese are moving toward more serious rearmament than they've ever done before. The world is getting to be a more dangerous place," said William Triplett, a former chief Republican counsel to the Senate Foreign Relations Committee.
John Pike, head of research firm GlobalSecurity.org, sees Japan at the start of a 10- to 15-year buildup that will jar Asia's military balance.
"By the end of this decade, I would expect to see all the changes that need to be in place (for the) buildup," Pike said.
Opportunity For U.S. Firms
Japan is erecting an anti-missile screen with U.S. help. It's also interested in Lockheed Martin's (LMT) ultra-advanced F-22A Raptor fighter.
U.S. manufacturers shipped nearly $10 billion worth of arms to Japan from 1997 to 2004, congressional figures show. That figure is expected to swell.
Legalities still block a big Japanese buildup. The post-World War II constitution bars the use of military force to settle international disputes, but allows for self-defense.
Ex-Prime Minister Junichiro Koizumi stretched those limits, sending troops in a limited role to Iraq. His successor, Shinzo Abe, says he wants to rewrite the pacifist parts of Japan's constitution.
Some say Abe will move gingerly to change the constitution.
"Abe will not touch that issue for a while," said Yuki Tatsumi, a research fellow at the Henry L. Stimson Center think tank.
Still, Tatsumi notes that a government practice that capped annual Japanese defense spending at 1% of GDP was broken by the 1980s.
"If Abe chooses to break it (again), there's nothing that prohibits him from doing so," she said.
A ban on military exports is also being put aside, said Tatsumi. Since 2004, Japanese firms doing joint missile research have been allowed to transfer tech to U.S. firms. Further transfers are being screened on a case-by-case basis.
A Nonnuclear Buildup
The U.S. is pledged to defend Japan, if necessary, with nuclear weapons. Abe has reassured the U.S. that his country won't develop its own nukes. If Japan did, it could unleash an atomic arms race in the region.
Analysts say Washington wants Japan to bulk up its conventional forces, now 240,000 strong, and to assume more of the defense burden in Asia.
Japan spent a grand total of $45.3 billion on defense in 2005, behind the U.S., Britain and France, according to the Stockholm International Peace Research Institute. The U.S. spent $507 billion.
China's official defense spending was $30.2 billion in 2005. The CIA says actual outlays are far higher.
Starting in 2007, Japan will spend about $8.5 billion on deploying U.S.-designed anti-missile defenses around Tokyo.
U.S.-based Raytheon, (RTN) maker of the Patriot anti-missile system, will benefit. Boeing (BA) also has a tight hold on the Japanese market.
Tatsumi said it's unclear if the U.S. will sell Lockheed's F-22 to Japan. Congress has nixed high-tech fighter sales to other nations in the past. But more planes sold would cut the current high sticker price of $130 million per plane.
If Japan can't buy the F-22, Tatsumi said, the country will focus on buying U.S.-designed late-model F-18 Hornets and F-15s.
Five Japanese firms account for almost 60% of all national defense work. They include plane maker Mitsubishi Heavy Industries and guided weapons specialists Toshiba and Mitsubishi Electric. The others are Kawasaki Heavy Industries and Ishikawajima Heavy Industries, makers of helicopters and ship engines.
U.S. and Japanese firms are jointly developing a sea-based interceptor missile to knock down North Korean missiles. The system is expected to cost $2.7 billion. Japan has agreed to pay $1.2 billion, with the U.S. paying the rest.
© Copyright 2006, Investor's Business Daily, Inc.
