The Japanese Cabinet adopted a 2026 defense white paper on Tuesday, naming China its primary strategic challenge and prioritizing AI and domestic drone manufacturing to counter security threats and a shrinking workforce. Prime Minister Sanae Takaichi’s administration identified China as the country’s "greatest strategic challenge," emphasizing the urgent integration of artificial intelligence and autonomous drone technology. The white paper notes that modern warfare, including conflicts in Ukraine and the Middle East, requires rapid technological adaptation, and that automation is essential for defense with fewer personnel due to a shrinking population. The Acquisition, Technology and Logistics Agency initiated a rapid development program for combat drones, selecting four manufacturers from 38 applicants for naval trials beginning in August 2026. Toshiba and startup Prodrone announced a partnership on July 31, 2026, to develop domestic interceptor drones. The government has begun easing restrictions on lethal weapons exports to help firms scale production. Challenges include supply chain dependency on lower-cost imports, much originating from China, and fiscal pressure from increased defense spending amid national debt and long-term interest rates. China has criticized these policy shifts, potentially straining diplomacy.