The Japanese government has unveiled a growth strategy that aims to invest over 370 trillion yen (approximately $3.54 trillion) in strategic industries such as artificial intelligence (AI) and semiconductors by 2040. As major countries adopt fiscal spending-driven industrial policies, Japan plans to stimulate private investment through government-led initiatives. However, concerns have been raised that if private investment does not increase as anticipated, the national debt could grow even larger.
According to reports from the Nihon Keizai Shimbun (Nikkei), Asahi Shimbun, and Yomiuri Shimbun on June 25, Minister Takaichi held a joint meeting of the Economic and Fiscal Advisory Council and the Japan Growth Strategy Council the previous day, where she presented this growth strategy and investment roadmap. Takaichi stated, "We will break the trend of insufficient investment in the future," positioning this strategy as a key policy of 'responsible proactive fiscal measures.'
The growth strategy prioritizes support for 62 products and technologies across 17 strategic sectors, including AI, semiconductors, shipbuilding, new drug development, advanced medical care, and content creation, with a combined investment of over 370 trillion yen by 2040. The government believes this will catalyze domestic private capital investment to exceed 230 trillion yen annually by 2040, surpassing the previous target of 200 trillion yen.
AI and semiconductors are at the core of this strategy. Investment in AI and semiconductor-related products and technologies, including overlaps, is estimated at around 102 trillion yen, with 68 trillion yen allocated specifically for semiconductors. An additional 10.5 trillion yen will be directed toward physical AI, including AI robots, and 20.5 trillion yen for next-generation wireless communications. Approximately 64 trillion yen will be invested in new drug development and advanced medical care, while 34 trillion yen is earmarked for the content sector, including gaming, by 2033.
The backdrop for this large-scale investment strategy is Japan's chronic underinvestment. Citing data from the Ministry of Economy, Trade and Industry, Yomiuri reported that research and development and capital investment account for about 11% of corporate revenue in the U.S., 9% in the Eurozone, but only about 7% in Japan. The Takaichi administration aims to reduce investment uncertainty for businesses by promising long-term government support to encourage private investment.
The budget formulation process will also change. According to Asahi, the Japanese government is planning an additional annual fiscal expenditure of 10 trillion yen to support this growth strategy. Takaichi announced the creation of a separate investment category called 'Strong and Prosperous Japan,' which will secure budgets according to multi-year plans and will not impose limits on budget requests from various ministries.
A significant issue is that this growth strategy is intertwined with Japan's fiscal consolidation logic. The government has traditionally used the ability to manage policy costs without incurring new debt as a core criterion for fiscal consolidation, focusing on achieving a primary balance surplus. However, the Takaichi administration, which is committed to large-scale investments, emphasizes reducing the national debt burden relative to the economy over immediate fiscal improvements.
This calculation relies on growth projections. Nikkei cited Cabinet Office estimates suggesting that if the growth strategy's effects materialize, real GDP growth rates could rise to the upper 1% range in the 2030s. Based on the same estimates, Asahi predicts real growth rates could reach 1.0% in 2030 and 1.7% in 2035. The government calculates that even if the national debt increases, the burden relative to GDP will decrease if the economy grows as expected. Takaichi emphasized that "projections have been presented that show sustainability of public finances can also be achieved."
However, it remains uncertain whether the Japanese economy will follow this scenario. Nikkei pointed out that Japan's average real growth rate over the past 15 years has only been 0.7%. Even during the Abenomics era, large-scale fiscal spending and monetary easing did not yield the expected growth rates. Takahide Kiuchi, an executive economist at Nomura Research Institute, told Nikkei, "If private investment does not increase as projected, this growth trajectory will remain a pipe dream."
Labor shortages also pose a challenge. Even if capital investment increases, production expansion will be limited if there is a lack of personnel to operate it. Nikkei reported that a CEO of a shipbuilding company stated, "Just digging a dock and installing a crane does not mean we can build ships." Yomiuri also noted that voices from related companies are expressing that "even if we have the funds, we cannot utilize them fully. We need talent."
The government's ability to select appropriate support targets is another challenge. Yomiuri referenced the case of Elpida Memory, a semiconductor memory company that received government support but ultimately failed, raising questions about the government's selection capabilities. Nikkei pointed out that Japan is the only G7 country without an independent fiscal institution to neutrally verify government fiscal forecasts and policy effects. If government projections appear overly optimistic, investor skepticism may increase. The Takaichi administration's growth strategy, which aims to inject funds into advanced industries while reducing the national debt burden, now faces a critical test of its effectiveness.
* This article has been translated by AI.
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