Will Japan's $240 Billion Defense Budget Spark a Gold Rush?

China declared a new Air Defense Identification Zone, or ADIZ, last month, annexing a good portion of the airspace over the East China Sea. Japan is not pleased -- but investors in some of America's biggest defense companies should be.


Overlapping "ADIZes" of China, Korea, and Japan. Source: Wikimedia Commons

Responding to a rising tide of threats in its neighborhood -- not only from China, but from North Korea as well -- the government of Japanese Prime Minister Shinzo Abe this week promised to make sizable investments in building up Japan's military forces. Specifically, over the next five years, Japan intends to spend $240 billion buying and servicing new equipment for its military.

"240 billion here, 240 billion there. Pretty soon ..."
That's quite a big wallet that Abe is opening up, and promising to hand cash out of. But what precisely does he intend to buy? And more importantly for investors, which companies will he be buying it from?

According to DefenseNews.com, the Abe administration has its eye on a wide assortment of aircraft to help it patrol the East China Sea, defy the Chinese ADIZ, and assert Japan's interests in the area.

"Surveillance drones" and "long-range surveillance planes" are said to be front and center on the shopping list. This would seem to make Northrop Grumman (NYSE: NOC  ) , manufacturer of the Global Hawk high-altitude, long-endurance drone, and Boeing (NYSE: BA  ) , maker of the P-8A Poseidon intelligence, surveillance, and reconnaissance aircraft, leading contenders for a piece of Japan's defense spending pie. And as luck would have it, Northrop is right this moment developing a "Broad Area Maritime Surveillance," or BAMS, version of its Global Hawk.


Northrop's BAMS in flight. Source: Northrop Grumman.

But Japan's shopping cart won't stop there. No sooner will Abe exit the airplanes department, than he plans to turn the corner and begin rolling right up the armored vehicles aisle. Because a cornerstone of Japan's new, more defiant stance in the East China Sea will be the creation of a "special Marine Corps-like unit" to guard Japanese island possessions that lie within what China now describes as "its" airspace.

Reportedly, Japan has already determined that it needs both V-22 Osprey tilt-rotor aircraft, which are jointly manufactured by Boeing and Textron (NYSE: TXT  ) , and amphibious assault vehicles -- most likely manufactured by General Dynamics (NYSE: GD  ) , to make this unit into a viable amphibious warfare threat.

Is this for real?
How serious are the Japanese about undertaking this military buildup? Serious enough that last month, The Wall Street Journal reported that Japanese legislators have been talking about building an aircraft carrier -- the country's first since World War II. That's a serious hot-button issue in Japan. If they're talking carriers, they're probably talking serious.

And investors should seriously consider buying into this trend.


The Japanese Shōkaku-class aircraft carrier Zuikaku fought in WWII from Pearl Harbor to Leyte Gulf. Source: Wikimedia Commons.

Sit out the next market crash with dividend stocks
When stock markets tumble, dividend stocks are great to own. They're less likely to crash and burn than growth stocks, and as their prices get cheaper -- their dividends get bigger! Over the long term, the compounding effect of quarterly payouts plus earnings growth add up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 23, 2013, at 9:03 AM, PeakOilBill wrote:

    I would spend my money on stealth fighters, widely dispersed with numerous decoys, and quiet submarines. Aircraft carriers are too hard to defend against swarms of missiles and submarines.

  • Report this Comment On December 23, 2013, at 9:54 AM, JaegerBomb wrote:

    @PeakOilBill: How do you get the stealth fighters to China you big dummy, on quiet submarines? Hmmm. We gotta watch for these intelligent ones. Shoot for 240 billion, couldn't Japan just move their entire country to Mars?

  • Report this Comment On December 23, 2013, at 10:54 AM, chucky001 wrote:

    @JaegerBomb, you're the big dummy, Japan is close enough to China so that the stealth fighters can be land-based. If necessary you can also use aerial refueling. Peak is right about the carriers. China is spending $$$ on quiet subs of its own that would make them sitting ducks.

  • Report this Comment On December 23, 2013, at 12:15 PM, TerrifiedCitizen wrote:

    All these years since WW2, it was thought that Japan's return to military might was restrained by post-war treaties and conventions, mainly because they became so fanatical and throw any sense of morality out the window... they treated their prisoners worse than dogs, completely inhumane behavior.

    For this reversal to occur, the US must be allowing behind the scenes support for what they consider strategic advantage. This is another one of those short-sighted decisions that will ultimately bite Washington in the butt. That is, if there's a Washington left after this term is over.

  • Report this Comment On December 23, 2013, at 1:15 PM, rocket7777 wrote:

    Only reason japan is buying any of usa equipment is just for a good will. Japan is twice better at making drones and 100 times cheaper

    Japan should learn from north korea and increase defense force and let them rotate and help rural farmers, elderly care, minor rural repair, child care etc. Let defense force increase 10% per year and let defense force spend 20-60% of time on civilian type labor. Perhaps even train and use them as civilian security force during olympics.

    These type thing will be great synergy that increase force plus provide labor to needed area due to population aging/decreasing. Women can get much more involved as defense force that also does child care services to population and military.

    This synergy help a lot; Distribution of more young to rural; Help aging farmers and population; Help women with child care; Help create rural jobs. Help population increase by providing healthy rural military couple both earning; clinic; disaster preparedness; rescue; firefighting

    Staff them in rural clinic too since medical is needed during conflict plus disaster relief preparedness.

    It should allow liberal leave of absence for things like pregnancy, raise kids, or private work.

    I guess functionally it would be like combination of peace corp, reserve,national guard, and defense force.

    .

  • Report this Comment On December 23, 2013, at 3:01 PM, ManBearPig666 wrote:

    Oh yes, Japan should learn from North Korea. Go live there, if you want, I, for one, know I'd choose to be a street sweeper in Japan 50 years ago than an engineer in North Korea now.

    All that help the North Korean army is giving to farmers is working out fantastic, they can't even feed themselves, even the bigwigs on TV look like Auschwitz inmates, the only fat b*****d in the whole country is the "Dear Leader", or whatever they call him.

    Japan doesn't need to farm too much, they get their people to make PS4s, buy food with 10% of that income and keep the rest. It's called progress and not being a communist drone, try it sometime.

    And for the other one, stop the "Japan is guilty" rubbish, Will you? It's been 70 years, for God's sake, Japan has apologised and been a good neighbour for all this time. How much longer do you suggest they should wait before they can be "forgiven"?

    How about your China (yes, you're not fooling anyone) being forever treated as a pariah for invading Vietnam about 10 times, the last one of them in the 1980s, or Korea, or trying it with Japan in the 14th Century? Where do we stop? Hey, we Europeans should ask Italy to be banned from the UN, for what the Romans did. Where's the line, my friend?

    Or if you want present-day, let's play present-day. How about China invading, and continuing to occupy, Tibet? Present-day oppression, still going on, not some stuff that nobody alive remembers any more.

    Thought so.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2774172, ~/Articles/ArticleHandler.aspx, 10/25/2014 3:55:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement