The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

The second half of 2011 proved to be a transitional period in Japanese politics and also in defence, with new Prime Minister Yoshihiko Noda appointing Yasuo Ichikawa as Japans defence minister in early September 2011. A known proponent of easing the countrys tight restrictions on military operations and also defence exports, Ichikawa said upon taking office that he felt there was room to reconsider the military export bans effectiveness. However, successive governments have shied away from reform in this area, and Ichikawa will need time to effect change in Japans highly conservative system.

With Chinas attention fixed firmly on its disputes with the Philippines and Vietnam in the South China Sea, tensions between Beijing and Tokyo eased towards the end of 2011, with no repeat of earlier confrontations over the disputed Senkaku/Diaoyu islands. In October, the two countries resumed military exchanges after a years suspension, with a Chinese Peoples Liberation Army delegation visiting Tokyo.

However, some points of tension remained. In October, the Japan Air Self-Defence Force (JASDF) revealed that the number of incursions by Chinese aircraft into Japanese airspace had tripled to 83 between April and September 2011. Japans decision to back the Philippines in its dispute with China, and to elevate its relationship with Manila to the level of strategic partnership in September, irritated Beijing, as did Japans backing for the United States stance, which some interpreted as anti-Chinese, at Novembers East Asia Summit. Prime Minister Noda is due to visit China in December, and he plans to ask Beijing for assistance in tracking the source of a cyber attack launched against Japans biggest defence firm, Mitsubishi Heavy Industries (MHI), earlier in the year.

The attack successfully extracted sensitive military data from MHI, and it has been widely speculated that the operation had Beijings official sanction. Japans warm ties with India continued to strengthen, against the backdrop of both countries tense relations with China. Tokyo and Delhi announced in November that they would conduct their first joint naval exercise in 2012. Following November talks between Ichikawa and his Indian counterpart, A.K. Antony, the Japanese government said it was minded to permit the export to India of US-2 search-andrescue seaplane, manufactured by ShinMaywa Industries. Though the US-2 has no offensive capabilities, the move hinted at Tokyos growing willingness to push the envelope of its military export ban.

Relations with the US remained steady in the latter part of 2011. Visiting Tokyo in October, US Defense Secretary Leon Panetta urged the Japanese government to move forward with a controversial plan, agreed in 2006, to build a new base in Okinawa that would allow US forces stationed on the island to relocate.

The US and Japan also agreed in November to update their status of forces agreement to allow US civilian personnel based in the country to be prosecuted by local law enforcement agencies, amid the enduring unpopularity of US forces in Okinawa especially. In October, Japan also agreed to start using its air-to-air refuelling aircraft to refuel US military aircraft.

In September 2011, the Ministry of Defence (MoD) requested a 2012 budget of JPY4.69trn (US$60.2bn), including around US$700mn for the acquisition of four new fighter aircraft – the clearest indication yet that the selection of Japans F-X next-generation fighter aircraft is nearing. The three contenders – the Eurofighter Typhoon, Boeing F/A-18E/F Super Hornet Block II and Lockheed Martin F-35A Lightning II Joint Strike Fighter – formally submitted their proposals in September 2011, although within weeks the Japanese press was already speculating that the Typhoon had been eliminated. Ichikawa has said he expects a selection for the 40-60 aircraft requirement to be made by the end of 2011. In November, the MoD also signalled its intention to push ahead with its own next-generation fighter development programme, known as the Shinshin ATD-X, despite the technical and financial hurdles.

The 2012 budget request also included JPY119bn in funds for a third helicopter carrier – the clearest signal yet that Japan is determined to expand its helicopter carrier fleet beyond the two ships currently in service.

The urgency with which Japans declining defence industry needs the F-X and ATD-X programmes to move forward were highlighted by the sobering news that 55 years of uninterrupted domestic fighter aircraft production came to an end in September 2011, when the JASDFs final F-2 fighter rolled off the production line at MHI. But with the 2011 defence budget falling for the ninth consecutive year to an 18- year low of JPY4.66trn (US$59.8bn), it was hard to see a turnaround in industry fortunes occurring any time soon.