Takaichi Government Targets 370 Trillion Yen Investment Push

Prime Minister Sanae Takaichi, speaking at a meeting of the Growth Strategy Council, said Japan must raise its long-stagnant potential growth rate to make the country “strong and prosperous.” She said Japan’s underlying strengths, including technology and labor efficiency, are not inferior to those of other countries, but that domestic investment has been insufficient.

Takaichi cited shipbuilding, perovskite solar cells, next-generation advanced materials, quantum computers and plant factories as areas where Japan has technologies capable of leading the world. She also pointed to regional resources with large potential, including agricultural, forestry and fisheries products, processed foods, tourism resources and new rocket launch sites.

She said excessive fiscal restraint and reliance on short-term supplementary budgets had failed to draw out sufficient domestic investment to commercialize such technologies and build a stronger economy. The Takaichi Cabinet will “break away from excessive austerity thinking and a lack of investment in the future,” she said, pledging full support for companies and regions seeking to bring technologies into society and capture new markets.

The government’s Japan Growth Strategy and Regional Future Strategy are designed to induce public and private investment, strengthen supply capacity, increase employment and income, improve consumer sentiment, raise business earnings and generate a virtuous cycle in which tax revenue grows naturally without raising tax rates as GDP expands.

The government has compiled public-private investment road maps for major products and technologies in 17 strategic fields, including physical AI, all-photonic networks, quantum computing, rocket launch sites, unmanned marine systems, next-generation ships, biopharmaceuticals, perovskite solar cells, plant factories, fusion energy and games. The road maps cover 62 major products and technologies and estimate total public-private investment of more than 370 trillion yen by 2040.

Working groups were established for each of the 17 fields, with 186 participants, including experts and industry representatives who would be central to investment decisions. The groups held 54 rounds of discussions to examine the proper form of public-private investment. In some fields, ministry officials interviewed nearly 100 private companies to hear specific investment plans and ideas.

In the physical AI road map, the government said Japan can use its strengths in abundant on-site data and manufacturing infrastructure to overcome labor shortages and gain international competitiveness by accelerating deployment. Through budget-formulation reforms, the government aims to build a domestically developed multimodal foundation ahead of the rest of the world for physical AI development in areas such as factories, logistics and nursing care, drawing 10.5 trillion yen in investment by fiscal 2040. It also expects to generate 78.5 trillion yen in public-private investment in semiconductors that support system implementation.

For the content industry, where Japan has strong international competitiveness centered on games, anime and manga, the government aims to achieve annual overseas sales of 20 trillion yen by 2033, on par with automobile exports, through a support framework that unifies budget execution and pools public and private expertise.

Takaichi said the Regional Future Strategy will promote investment in local areas by strategically forming large-scale industrial clusters, creating workplaces and building ecosystems to train the people who support them. The strategy consists of three pillars: strategic industrial cluster plans based on major investments by companies connected to the 17 strategic fields; regional industrial cluster plans led by prefectures; and local industry growth plans led by municipalities or prefectures that use regional resources such as agriculture, forestry and fisheries, food manufacturing, tourism, sports business and traditional crafts.

The government will strongly promote investment under the Regional Future Strategy by using a new investment framework. For strategic industrial cluster plans, it will separately and boldly support proposals from regions for infrastructure development, railways, ports, private cluster bases such as rocket launch sites, and supply chain investment that supports the 17 strategic fields. It will also support infrastructure for regional industrial cluster plans and local industry growth plans based on ideas originating in local communities.

The government plans to expand Regional Future grants to support local governments’ own investment-promotion efforts, demand expansion measures and other soft support programs. It will also consider establishing a Regional Future category within national subsidies for equipment investment and human resource development by mid-sized and small companies that are willing to invest locally in cooperation with municipalities.

Takaichi said the budgets will be arranged boldly and systematically through the initial budget, and that the national and local governments have already begun preparing plans together. The first round of plans is set to be announced in July, including strategic industrial cluster plans in areas such as semiconductors, next-generation ships and rocket launch sites, as well as regional industrial cluster plans focused on distinctive local industries such as food processing, hydrogen and storage batteries. The government will continue accepting and announcing plans thereafter.

To confirm whether investment is advancing across all 47 prefectures, the government will closely track the progress of investment in each region and regularly update and publish a domestic investment map.

The Japan Growth Strategy also covers eight cross-sector issues, including strengthening new technology competitiveness, startups, finance, human resource development, labor market reform, reducing burdens, creating conditions for wage increases and cybersecurity. Based on issues identified during the preparation of the public-private investment road maps and the Regional Future Strategy, the government proposed measures including support for core universities with strong research capabilities that contribute to industrial competitiveness, a startup support package, a growth investment finance strategy, stronger basic expenses and diversified competitive research funding, enhanced reskilling support, tax measures for housekeeping support services, measures to improve earning power at mid-sized and small companies, and a cybersecurity strategy.

Takaichi said public and private investment is expected to expand nationwide beyond the 62 priority products and technologies and the three types of industrial cluster plans. She said the world is entering a new phase in which governments and the private sector work together through bold and planned industrial policy involving fiscal spending to respond to changes in the international economic order and rising uncertainty.

In Japan, she said, the government will step forward to strongly support domestic investment, while deepening coordination with industry, which remains the main actor in the economy. She said momentum is growing in the business community for a shift toward an investment-led economy, and among local governments and regional stakeholders for wide-area public-private cooperation based on their own initiative.

Takaichi said the fiscal 2027 budget will be the first budget compiled from the request stage under her Cabinet. Measures to promote investment, including the public-private investment road maps and the Regional Future Strategy, will be specified toward the end of the year. The government will fundamentally reform the way it prepares budgets so that truly effective policies based on new ideas, including those from the private sector, can be drawn out beyond the continuation of existing policies and constraints.

Supplementary budgets will be limited to items with high urgency, while forward-looking investment measures will in principle be handled through the initial budget. Takaichi said the government will move away from dependence on supplementary budgets and increase predictability for businesses and local governments.

A key part of the budget reform will be the creation of a new investment framework called the Strong and Prosperous Japan Investment Framework. It will cover highly effective measures that substantially raise domestic private equipment investment and potential growth, including those shown in the public-private road maps and cross-sector policy measures.

Takaichi said the framework will be based on the idea that “a country that does not take on challenges has no future.” To allow truly effective investment support, requests under the framework will not be subject to ceilings, and ministries will be allowed to request the necessary amounts, including itemized requests. She said what matters is the effect of fiscal spending on GDP growth, not the amount of fiscal spending itself.

Budget measures under the framework will generally be based on multi-year plans to improve predictability for the private sector. The government will regularly review progress and flexibly revise budgets that have little effect in inducing investment. It will also review fund rules, including the current rule that budget measures should generally be limited to three years, on the premise of strict performance management and flexible, efficient fund administration.

Takaichi said the framework will secure a necessary and sufficient scale while maintaining fiscal sustainability. Policies that are not producing results will be boldly reviewed, and the government will examine a fiscal scale that can be achieved while steadily lowering the ratio of government debt to GDP. In fields especially important for economic security, the government will manage budgets separately through special accounts and secure sufficient funding over multiple years, including through bridge bonds backed by redemption resources.

Takaichi instructed relevant ministers to reflect these basic ideas, the new budget formulation policy and the direction for responsible proactive fiscal policy in the government’s basic economic and fiscal policy guidelines. She also instructed Finance Minister Satsuki Katayama to prepare concrete steps for fundamental budget reform and report the initial approach at the Council on Economic and Fiscal Policy on June 25.

The government also presented estimates of the economic effects of the Japan Growth Strategy and Regional Future Strategy. It said that by moving away from contractionary thinking and boldly expanding investment through a decisive growth strategy, Japan could realize an additional 410 trillion yen in cumulative domestic investment, lift annual domestic private equipment investment to 230 trillion yen by 2040 and bring GDP close to 1,100 trillion yen.

The estimates also showed that even if the government were to spend an additional roughly 10 trillion yen each year, separate from budgets managed outside the normal framework with secured financial resources, the government debt-to-GDP ratio could continue to decline, indicating that economic growth and fiscal sustainability could be achieved together.

Takaichi said the goal is to generate a virtuous cycle in which public-private investment strengthens supply capacity, raises employment and income, improves consumer sentiment, increases business earnings and naturally lifts tax revenue without tax increases, while also securing fiscal sustainability and market confidence.

She said the Japan Growth Strategy and Regional Future Strategy to be compiled in July will serve as the blueprint for achieving the “responsible proactive fiscal policy” she presented to voters in the House of Representatives election in February, which she described as a choice of government. Takaichi instructed all ministers to accelerate work across policy areas, including budgets, tax measures and legislation, after reflecting the budget reform in the basic policy guidelines and taking account of the expenditure request standards to be announced later.

Source: TBS

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