TOKYO: Prime Minister Sanae Takaichi has unveiled an investment roadmap for Japan’s economy that envisions huge sums of spending, but has left key questions unanswered on how she’ll pay for the programme over a sprawling 14-year timeframe.
The plan calls for investing more than 370 trillion yen (US$2.3 trillion) in the 14-year period ending in March 2041, with 101.6 trillion yen earmarked for artificial intelligence (AI) and chips spending alone, according to documents released on Wednesday after a policy advisory panel’s meeting.
The plan is unprecedented in scale and scope, but it’s unclear how much fresh spending there would be.
“As far as I can recall, this is the first time a roadmap for growth spanning such a long period has been presented, and I haven’t heard of any other countries’ plans like this, either,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.
The strategy outline through which Takaichi aims to create a “strong and prosperous investment framework” was mostly shrugged off by financial markets yesterday. Market participants said the long period made it hard to assess market implications.
As a recent comparison, former Prime Minister Shinzo Abe released a revitalisation strategy titled “Japan is Back” in 2013 that set numerical targets to be achieved by 2020. It didn’t include spending pledges.
Takaichi’s blueprint calls for a combination of public and private investment to reach the target amounts, but it doesn’t provide a breakdown between the two sectors.
In the most optimistic growth projection, the government is seen contributing 10 trillion yen per year, meaning public contributions could amount to a little less than half.
It’s uncertain how much of an additional impact the strategy would have, as private companies already invest hundreds of billions of dollars in plant and equipment every year.
“With such a long time frame, it’s impossible to predict how economic conditions will unfold, so the plan’s accuracy is inevitably very low, raising questions about its reliability,” Taguchi said.
“It’s hard to imagine this serving as a catalyst for private investment.”
The investment roadmap marks a key step in Takaichi’s effort to put her stamp on Japan’s growth strategy as technological change and geopolitical tensions reshape economic priorities.
The premier is seeking to channel investment into sectors that can strengthen economic security – from supply-chain resilience to critical technologies – while boosting the country’s long-term growth potential through support for emerging industries.
The spending plan lacks an explanation of how exactly the government will pay for it without worsening its debt-heavy finances.
The government also released on Wednesday long-term economic and fiscal projections incorporating Takaichi’s growth strategy under three scenarios.
In the most optimistic case, in which the strategy delivers as intended, the potential growth rate is projected to rise to 1.8% from 0.4%.
The debt-to-GDP (gross domestic product) ratio is expected to decline steadily even as the government contributes 10 trillion yen in real spending toward the plan each year.
“It is clearly unrealistic to assume that the potential growth rate will rise by more than one percentage point,” Takahide Kiuchi, executive economist at the Nomura Research Institute, wrote in a research note.
“This is nothing more than pie in the sky.”
In the other two scenarios – where technological and market uncertainties curb the strategy’s impact, or where current trends persist – the ratio is projected to begin rising again during the 2030s.
All three scenarios assume inflation stabilises at around 2%.
Takaichi’s government has shifted its fiscal focus toward reducing the debt-to-GDP ratio, moving away from using a primary balance target that had guided government policy for more than two decades.
The debt-to-GDP metric is generally considered easier to improve during periods of inflation.
The projections underscore how heavily Japan’s fiscal outlook depends on the success of Takaichi’s growth agenda.
The estimates do not take into account the costs of any hikes in defence spending or any potential consumption-tax cuts, suggesting fiscal pressures could prove greater than the forecasts imply.
Takaichi’s economic agenda has split investor sentiment. In the stock market, her push for large-scale investment helped the Nikkei 225 briefly top 70,000 for the first time ever this month.
At the same time, concerns about fiscal sustainability helped push super-long Japanese government bond (JGB) yields to multi-decade highs earlier this year.
“Given that Japan has not experienced a sustained combination of rising inflation and a steadily increasing debt-to-GDP ratio since the collapse of the asset bubble in the late 1980s, it is difficult to gauge how such a scenario would affect JGB yields,” said Ataru Okumura, chief rates strategist at SMBC Nikko Securities.
“That uncertainty is particularly likely to encourage a more cautious stance toward long-term and super-long JGBs.”
Of the investment for AI and chips, the bulk will go toward semiconductors, which form the core of physical intelligent systems, as well as vertical AI, which is designed for a specific job or industry.
The investments are meant to ease supply bottlenecks by addressing structural labour shortages in the ageing nation.
The plan estimates semiconductor investment will generate 443 trillion yen in economic spillover effects by fiscal 2040, while physical AI and vertical AI investment will produce 144 trillion yen and 222 trillion yen, respectively.
The investment plan is part of Japan’s ongoing efforts to revive its chip industry.
Since releasing a new strategy in 2021, the government has set aside about 7.2 trillion yen for semiconductors and AI, according to the Industry Ministry.
Of the total, the government has allocated sums to specific projects such as state-backed chip venture Rapidus Corp, which has received public support worth roughly 2.6 trillion yen. — Bloomberg
