Japan’s evolving space industry: opportunities and government support

Key take-aways

• “Space” is increasingly becoming a matter of national security as space infrastructure critical to global communication, transport and military
• Governments globally have embarked on rolling out surveillance, debris removal and other defence initiatives to ensure satellite constellation safety and monitoring adverse activity at  hostile countries as well as disaster information gathering
• The planned IPO of SpaceX will further result in investors’ focus on this sector globally
• The new Japanese government’s initiatives are designed to make Japan the number two country behind the US as to building out aerospace and space capabilities. The Japanese industry is thriving.

Introduction

“Space” security and “Space” sustainability are already a hot topic in general and will be gaining even more attention with the planned “mega-IPO” of SpaceX in particular later this year.  Before moving on to Japan’s space industry, a quick introduction of the most important topics in relation to “Space”.

Critical military infrastructure

Satellites are vital to modern military operations, supporting missile warning, targeting, navigation, communications, and force coordination. Protecting and advancing satellite capabilities are crucial for national defence. Space assets enable intelligence gathering, secure communication, and missile defence, with effective satellite management impacting conflict outcomes. For example, India plans to deploy over 50 reconnaissance satellites, including night-imaging models, to improve security after recent surveillance shortcomings during border tensions with Pakistan.

Emerging adversarial capabilities

China and Russia are rapidly developing advanced space warfare technologies like co-orbital interceptors, jamming systems, directed-energy weapons, and anti-satellite missiles. Countries such as Germany and France are boosting space security investments in response.

Global anti-satellite weaponry

Over 200 anti-satellite weapons are deployed worldwide. Russia has a substantial offensive arsenal, while China aims for strategic advantage in space. NATO now officially regards space as a warfighting domain.

European defence initiatives

Germany will invest €35 billion in space defence projects by 2030, with a focus on protecting vulnerable satellite networks. Incidents like the Russian cyberattack on ViaSat demonstrate these risks.

China’s expanding space network

China’s global space network expansion is raising concerns about shifting military power, especially among U.S. officials, emphasising the growing role of space in international security.

Strategic defence investments in space

Defence spending now accounts for 55% of global space budgets, up from 45% five years ago. The defence space sector is expanding rapidly, with market values currently between $90 billion and $120 billion, projected to reach $250 billion by 2035. This growth is driven by increased investments from major countries like the US and China. Notably, SpaceX has received $739 million in US Space Force contracts for military launches advancing missile warning and tracking systems, highlighting space's rising strategic role in defence.

Space asset vulnerabilities and sustainability challenges

Emerging vulnerabilities

Recent incidents, such as Russia's anti-satellite test in 2021 and cyberattacks on satellite terminals during the Ukraine invasion, reveal the growing fragility and strategic importance of space infrastructure in modern warfare.

Orbital debris risks

The number of tracked orbital objects has tripled since 2000 due to mega-constellations and increased commercial activity, heightening collision risks. About 75% of tracked objects are debris, and with over 40,000 artificial objects in orbit, the hazards are set to grow. Major events, like Russia's 2021 missile test, created thousands of fragments, endangering spacecraft and crew.

Economic and societal dependencies

Satellites support essential functions—communication, navigation, and weather forecasting—and rising congestion threatens these services. Around $191 billion in global economic activity is at risk from space debris, especially in orbits critical for research and security. The UN notes that sustaining satellite technology is vital for achieving many Sustainable Development Goals. Note the danger of the threat of debris accumulation which could trigger the  Kessler Syndrome, where cascading collisions render Earth’s orbit inaccessible, risking future missions as launches increase.

Regulatory and industry response

To address these challenges, industry and regulators are adopting stricter debris mitigation practices. Agencies like the US FCC and European authorities have updated disposal guidelines and removal targets to protect orbital sustainability.

Government policy in Japan and strategic support - paradigm shift in Japan’s space industry

A significant evolution in government policy has taken place under the leadership of Prime Minister Takaichi Sanae, who has played a critical role in advancing the space sector’s development. Prior to assuming the premiership, Prime Minister Takaichi contributed significantly to establishing Japan’s inaugural national strategy for space security during her tenure under former Prime Minister Kishida. She has also consistently supported prominent startups, including Synspective, Axelspace, and Astroscale.

The Japanese government aims to increase the value of its domestic space industry to JPY 8 trillion (USD 51.6 billion) by the early 2030s, with corresponding resource allocations. The Space Strategy Fund, administered by the Japan Aerospace Exploration Agency (JAXA).

Approximately one third of this funding will be allocated in the current year, with most projects scheduled for completion by the early 2030s. Notably, investment decisions are entrusted to external experts rather than government officials, positioning Japan competitively — particularly relative to China, where such decisions typically fall under direct government oversight. However, Japan plans to expand liability coverage paid out for accidents caused by rocket launches, in a move to support the country's private space industry.

Strategic focus and technology innovation

Recognising the interdependence of national security, space, and defence, the Japanese government is augmenting expenditure in these domains. Prime Minister Takaichi, prioritising national security, has directed funding toward disruptive technologies capable of cost-effective production, not dominated by incumbent players, and characterised by genuine innovation. The overarching goal is to foster globally competitive enterprises with unique product offerings. Such government funding is especially advantageous for smaller ventures—for instance, Maruhachi, a manufacturer of rocket fuel tanks—as it can enhance their credibility among major financial institutions.

Space strategy fund and commercialisation initiatives

At the heart of Japan’s aspiration to create its own equivalent (Interstellar Technologies) of SpaceX across varied sectors — including satellite and orbital re-entry technologies (ElevationSpace) — is the JPY 1 trillion Space Strategy Fund. The space industry is poised to become a successor to the automotive sector as a core economic driver. The Fund is structured to facilitate the commercialisation of innovative technologies, with the Japan Aerospace Exploration Agency (JAXA) issuing  tenders for government contracts totalling JPY 300 billion (USD 2.0 billion) in the second round of funding. ArkEdge Space serves as an exemplary beneficiary, utilising this support to develop LEO PNT satellites for JAXA.

Enhancing investment predictability and regulatory reform

To promote greater investment in space startups, the government is taking steps to improve investment predictability. By identifying aerospace as one of seventeen strategic sectors, the Minister of State for Economic Security is introducing initiatives aimed at securing multi-year budget commitments and implementing regulatory reforms to stimulate increased market demand.

Defence policy and industrial promotion

The Ministry of Defence (MoD) has adopted a proactive approach to supporting the space sector. Within the synthetic aperture radar (SAR) satellite segment, the MoD’s five-year budget provides a stable revenue foundation and establishes secure national security demand. As the possibility of space becoming a theatre of military conflict grows, the expansion of defence orders in the Space Situational Awareness (SSA) and Space Domain Awareness (SDA) fields is anticipated to accelerate. The MoD has articulated four primary strategies for enhancing space defence capabilities: improving battlespace awareness, securing satellite communications, ensuring mission assurance, and developing counter-space capabilities.

Beyond defence applications, the government is expected to implement industrial promotion measures related to disaster response and prevention. Satellite imaging solutions (QPS and Synspective) developed by space startups are likely to play a vital role in the early detection and mitigation of natural disasters.

VC trends and startup growth

Japan’s space sector is experiencing a significant transformation, presenting substantial long-term opportunities for investors. This paradigm shift is driven by several key dynamics shaping the industry’s future direction.

In the first half of 2025, Japanese aerospace startups distinguished themselves as leading fundraisers among domestic ventures, reflecting a notable shift in industry perception. For example, ArkEdge Space secured JPY 8 billion (USD 50.6 million) in funding, with the objective of commercialising microsatellite technology. The influx of capital into aerospace startups stands out, particularly given the Tokyo Stock Exchange’s (TSE) upcoming regulation requiring companies listed on the growth market to reach a market capitalisation of JPY 10 billion (USD 63 million) within five years post-IPO, or face delisting from 2030 onwards. This requirement highlights the strong confidence that venture capitalists place in the growth prospects of the firms they support.

Since 2023, five space startups have successfully gone public in Japan—a trend likely to persist if not accelerate. This progress is fuelled by ‘Second Generation’ space startups, which are leveraging insights gained from the successes and challenges encountered by earlier pioneers such as Astroscale.

Emerging opportunities in Japan's space sector

High-frequency small payload launch & recovery

Japanese enterprises are establishing a strong foothold in the high-frequency small payload launch sector. This segment of the space industry is anticipated to experience substantial growth, as it allows organisations to conduct research and development activities with increased efficiency. By minimising lead times and lowering costs for launching and retrieving small payloads, Japanese companies are enabling expanded research opportunities in areas such as pharmaceuticals, advanced metallurgy, and technology validation within microgravity settings. These advancements are expected to drive further innovation, reinforcing Japan’s position as a leader in precise and cost-effective space research.

Earth Observation (EO)

The global Earth Observation market is forecasted to exceed USD 8 billion by 2033, rising from its current valuation of USD 5 billion. Growth within this market is primarily fuelled by heightened demand for defence contracts and ongoing technological improvements in EO capabilities. These factors are essential to the sustained expansion of the market. Internationally, Europe stands out, with governmental bodies projected to increase their investments in EO and Space Domain Awareness (SDA)/Space Situational Awareness (SSA) to enhance defence preparedness. The surge in new agreements, exemplified by ICEYE's landmark synthetic aperture radar (SAR) satellite sales to European governments in 2025, highlights these trends.

Orbital debris removal – orbital crowding in space

Expansion of tracked orbital bbjects

Since 2000, tracked orbital objects have tripled to nearly 30,000, driven mainly by mega-constellations and increased commercial space activity. Satellites hit a record 2,800 in 2024, up from 190 in 2015, with low Earth orbit satellite launches increasing tenfold over this period. Space debris also climbed significantly in all orbits. Without better mitigation, growing debris could make orbital travel unsafe within a decade or two.

Current orbital population

By late 2024, around 40,000 objects were monitored in orbit, including 11,000 active payloads, 12,000 satellites, and about 42,000 pieces of debris larger than 10 cm. Debris makes up over 80% of tracked objects, and it is estimated there are more than 1.2 million pieces over 1 cm in size.

Future projections

Operational satellites could surpass 27,000 by 2030, potentially doubling in optimistic scenarios. Annual launches may rise from 1,100 (2014–2023) to 3,700 (2024–2033). China plans to launch nearly 44,000 satellites for its mega-constellation projects in the 2030s, about four times higher than other major global constellations.

Space real estate & facility development

With the planned retirement of the International Space Station (ISS) in 2030, Japanese corporations are intensifying their investments in projects aimed at developing its successor. Mitsubishi Corporation, for example, has augmented its stake in StarLab Space, which plans to launch an ISS replacement in 2029 and intends to secure a multiyear lease for the station's research facilities. Other prominent Japanese trading companies are also exploring opportunities associated with emerging space stations; Mitsui & Co has invested in Axiom Space—a direct competitor to StarLab—and has entered into an agreement with ElevationSpace for collaborative commercial flights. Concurrently, Kanematsu, a medium sized Japanese trading company,  has invested in Sierra Space, a partner in similar ventures with Jeff Bezos.

Space security and defence

Safeguarding satellite assets has assumed greater importance as nations conduct increasingly aggressive manoeuvres targeting strategic space capabilities. In response to this evolving threat, national governments are formalising and allocating funding for comprehensive space strategies, including the establishment of Rendezvous and Proximity Operations (RPO) facilities and the enhancement of satellite protection measures. These initiatives demonstrate a commitment to maintaining the resilience and security of space infrastructure amidst intensifying strategic competition.

Challengers facing the Japanese space sector

Labour force constraints

The Japanese space sector is currently grappling with notable labour shortages, a challenge that is especially acute for companies seeking to secure government contracts. The available pool of talent is relatively limited, in part because these positions typically require Japanese citizenship and, for some roles, successful completion of a vetting process. These prerequisites further restrict the number of eligible candidates.

In response to this urgent challenge, the Japanese government is considering several solutions, including hiring skilled professionals from allied countries to boost the workforce. Standardised recruitment criteria for the space industry have been introduced, with authorities now specifying required competencies for roles in rocket and satellite development. These efforts aim to encourage talent transfer from other sectors and provide clear guidelines for human resources in the industry.

The goal is for universities to use these standards to train students for space industry careers. To grow the domestic space market, the government recognises the need for tens of thousands of skilled professionals.

Sustained proof of concept

Another significant challenge is the need for sustained and repeatable proof of concept among certain Japanese space companies. Many of these organisations are still in the trial and demonstration stages, and have yet to establish a proven, scalable business model. Delays or setbacks in project timelines and order fulfilment can result in adverse impacts on company share prices and their ability to secure further funding.

This risk is particularly pronounced among companies that are at earlier stages in their funding rounds and have set ambitious goals, such as Space One. The uncertainty associated with unproven concepts and ambitious expansion plans can make these enterprises more vulnerable to fluctuations in investor confidence and financial support.

Key public Japanese companies

Astroscale (186A) – with a market capitalisation of JPY 87 billion (USD600 million), Astroscale is recognised as an innovator in on-orbit services, particularly within the domain of space debris removal. The company is gaining increasing recognition for its defence-related business prospects and is expected to be regarded as a key player in the defence sector in the foreseeable future. Of particular note, Astroscale is strategically focused on long-term opportunities associated with the U.S. Golden Dome missile defence system. The order backlog is projected to rise from Jc. PY 44 billion at the close of FY4/25 to just over JPY 50 billion by FY5/26.

ispace inc. (9348) – valued at JPY 62 billion (USD 410 million), is preparing for three major missions: the Hakuto-R mission targeting a soft lunar landing; the Draper Commercial mission scheduled for winter 2026; and Mission 4, a large-scale lunar mission slated for 2028 utilising the Series 3 lunar lander. Despite remaining unprofitable following an unsuccessful second lunar landing attempt, ispace now aims for a lunar landing in 2027.

Axelspace (402A) – at a valuation of JPY 31 billion (USD 210 million), provides two core offerings: AxelGlobe, delivering AI-enhanced satellite data for varied applications, and AxelLiner, a turnkey solution for microsatellite programs that enables clients to validate equipment and components in orbit.

Synspective (290A) – Synspective, valued at JPY 159 billion (USD 1.1 billion) and led by CEO Arai, is distinguished by its proactive international growth strategy. It has established regional sales teams in the United States, Asia, and Europe, securing orders as defence budgets expand. The company advances SAR satellite data analysis and solutions, offering services for construction enterprises and developing AI analytics tailored for defence applications

QPS Holdings Inc. (464A) – with a market capitalisation of JPY 80 billion (USD 530 million), QPS Holdings Inc. is well-positioned to benefit from Ministry of Defence subsidies through the Private Finance Initiative program. The company's strategy emphasises profit expansion by transitioning its equipment business into a highly lucrative operation, leveraging both domestic and increased overseas sales amid tightening global SAR satellite imaging supply.

SKY Perfect JSAT (9412) – valued at a market capitalisation of JPY 626 billion (USD 4.2 billion), SKY Perfect JSAT is strategically engaged in Earth Observation, communication satellites, and Situational Space Awareness (SSA). While its primary client is the Japanese Ministry of Defence, the company is exploring the expansion of SSA services to the United States and is developing optical communications products for European markets.

Mitsubishi Heavy Industries (7011, MHI), with a market capitalisation of JPY 14,320 billion (USD 100 billion).  MHI’s transition from the H-IIA to the H3 rocket has improved launch capabilities. The H-IIA program ended with a successful final launch in June 2025, while the H3 has had four straight successful missions since February 2024. With each H3 launch costing about $50 million—half that of the H-IIA—Mitsubishi Heavy Industries plans six launches annually. Eutelsat signed an agreement for multiple H3 satellite launches starting in 2027. The H-IIA and H-IIB rockets set global industry records for reliability and punctuality, and MHI aims to expand its role in global satellite launch services for applications ranging from intelligence to scientific research.

Kawasaki Heavy Industries (7012, KHI) – has a market capitalisation of JPY 2,420 trillion (USD 18.5 billion). It designs and manufactures satellite fairings as part of its rocket projects. In March 2003, Japan launched its first intelligence satellites with an upgraded H-IIA rocket, built by Mitsubishi, Kawasaki, and IHI. After earlier setbacks affected market confidence, Kawasaki improved its technology, especially in liquefied hydrogen tank development.

IHI (7013) – IHI, capitalised at JPY 2,900 billion (USD 20 billion), IHI is strengthening its rocket capabilities, focusing on solid boosters (the world’s largest), the Epsilon S rocket, and turbopumps for liquid fuel engines. The company leads in solid rocket production and aims to enhance space transportation services. IHI launched the "IHI-SAT2" satellite to support forest management and carbon credit last year and collaborating with ICEYE is expanding Earth observation data applications for security and commercial use. In March 2023, IHI signed a memorandum with Northrop Grumman to advance space technology, including manoeuvrable satellites for domain awareness.

NEC (6701) – NEC, with a market capitalisation of JPY 8,286 billion (USD 55 billion), is expanding its footprint in Aerospace and National Security (ANS). This division, representing a growing portion of revenue (12.28% in 2025), specialises in Satellite Ground Station Control Software and satellite image processing tools. Through NEC Space Technologies, it produces over 9,500 satellite components, launch vehicle equipment, and manufacturing support services.