Japan intends to deploy drones, artificial intelligence, and new methods of warfare as it retools its defense strategy for a changing security environment, according to details of an 8.9 trillion yen ($55.6 billion) budget request for the coming fiscal year disclosed by the Defense Ministry on Monday.

The preliminary figure represents only a modest increase over the 8.8 trillion yen ($55 billion) requested for the current fiscal year. The final total is expected to be substantially higher, with additional details to come later this year once Prime Minister Sanae Takaichi's government approves a new security and defense strategy aimed at strengthening Japan's counterstrike capability.

Under the five-year defense strategy adopted in 2022, Japan has doubled its defense spending to roughly 2% of gross domestic product—bringing it in line with NATO members' spending benchmark—in order to expand the Self-Defense Forces' offensive role and counter China's growing assertiveness. The 2022 documents named China the "greatest strategic challenge" Japan has ever faced, while also citing North Korea and Russia. Beijing has denounced Japan's military buildup as "new militarism."

Japan now aims to "drastically strengthen its deterrence and response capability by transforming its defense capability" by adapting to new forms of warfare such as Ukraine's deployment of drones, the ministry said in a pamphlet accompanying its budget request. The war in Ukraine has shown that inexpensive uncrewed systems can offset—and impose heavy costs on—far more expensive conventional platforms, a lesson that has driven countries worldwide, including the United States, to accelerate their own drone programs.

According to the ministry, modern warfare demands the domestic development and mass production of low-cost uncrewed weapons to cut expenses, reduce casualties, and construct a more cost-efficient air defense network.

The ministry plans to pair attack drones with long-range missiles to conduct more cost-effective counterstrikes. For the fiscal year beginning in April 2027, it is requesting an unspecified amount of funding to acquire unmanned attack drones capable of being launched from above or under water.

Officials say uncrewed weapons could also help Japan offset a shrinking pool of military personnel as the country's population ages and declines. The Self-Defense Forces have long struggled to hit recruitment targets, with the shortfall expected to deepen as Japan's population falls. Experts caution that developing fully domestically made drones would be a challenge, given that Japan's commercial drone market is dominated by imports from China.

In recent years, Japan has fortified its southwestern region—including the Ryukyu island chain near Taiwan—with longer-range missiles and interceptors. To further bolster its counterstrike capability, the ministry is seeking to develop hypersonic missiles that can be launched from submarines.

On the technology front, the ministry plans to introduce an integrated AI platform into command and control to improve the speed and accuracy of decision-making, including battlefield assessment and target selection. Japan is weighing the use of existing foreign AI technologies, including those from the U.S., while also developing and strengthening domestic AI—or combining the two approaches, officials said.

The ministry also aims to build a next-generation platform, dubbed the "AI orchestrator," which would integrate and operate multiple AI systems while ensuring autonomous selection and operation. In addition, it plans to construct a "Defense Ministry cloud" for the transmission of highly sensitive data and to maintain stable communications networks during emergencies or disasters. Expected costs for these measures were not specified.

Deterrence, officials argued, requires stable and sustainable defense equipment production, meaning Japan must reduce the risk of shortages caused by suppliers exiting the market. To that end, the ministry has requested an unspecified sum to fund a state-owned, contractor-operated system guaranteeing steady defense equipment output and supply, under which the government would acquire factories and outsource manufacturing to private firms.

The budget request also includes funding to support defense-related research and development by companies, as well as restructuring to improve their production capacity and efficiency.

Profits at major suppliers such as Mitsubishi Heavy Industries, Kawasaki Heavy Industries, and IHI Corp. have climbed as Japan builds up its military and expands arms exports. The industry as a whole nonetheless lags, constrained by a constitutional limit restricting the use of force to self-defense alone. Dozens of companies have withdrawn from the sector over recent decades, citing poor profits, an uncertain business outlook, and reputational concerns tied to producing arms—particularly lethal weapons.

This story was originally featured on Fortune.com.