Mid-cap defense stocks in the Japanese industrial electronics sector

Research evidence excerpt

Mid-cap defense stocks in the Japanese industrial electronics sector

P's proposed revisions to the three key

national security documents mention securing the funding for the next Defense Buildup

Program, and the government has been working to secure funding for the defense budget

to date. The FY25 tax system reforms introduced the Defense Special Corporate Tax (4%

surcharge on corporation tax) aimed at boosting defense capabilities that came into force

on 1 April 2026, and they also included hikes to tobacco taxes. The FY26 tax reforms are

due to introduce the Defense Special Income Tax (1% surcharge on income tax) in

January 2027. Because this will increase the burden on households, the Reconstruction

Special Income Tax rate will be lowered from 2.1% to 1.1%, although this tax will now be

in force through 2047, a 10-year extension over its previous expiry date of 2037.

Future direction in proposed revisions to three key national security documents

The LDP's Research Commission on Security presented its proposals for drafting a new

national security strategy to Prime Minister Sanae Takaichi on 24 June. This emphasized

the importance of a holistic approach that includes diplomatic and economic clout and not

just defense capabilities alone. In terms of defense capabilities, the proposals identified

dealing with new forms of warfare and ensuring that Japan has the capacity for prolonged

fighting as urgent issues, and also called for mass deployment and increased use of

unmanned assets and further strengthening of stand-off defense capabilities and

counterstrike capabilities.

While it did not include numerical targets for the defense budget, it cited the targets of

3.5% of GDP among NATO members and South Korea and 3.0% of GDP in Australia,