Japan has unveiled a long-term investment plan totaling over 370 trillion yen (2.3 trillion US dollars), covering 14 years until March 2041. Prime Minister Sanae Takaichi announced this vision for Japan’s economic development, which includes significant investments in artificial intelligence, semiconductors, and other key sectors such as defense, space, and shipbuilding.
Documents released on Wednesday after a meeting of the policy advisory council reveal that 101.6 trillion yen is allocated for artificial intelligence and semiconductors alone. The plan involves a mix of public and private investments to meet the target amounts, with the government expected to contribute just under half, assuming inflation remains at anticipated levels.
This investment roadmap is a crucial step in Takaichi’s efforts to shape Japan’s growth strategy as technological changes and geopolitical tensions alter economic priorities. The Prime Minister aims to channel investments into sectors that can bolster economic security—from supply chain resilience to critical technologies—while also enhancing the country’s long-term growth potential by supporting emerging industries.
Of the investments in artificial intelligence and semiconductors, the majority will be directed toward semiconductors, which are foundational to physical intelligent systems, as well as ‘vertical AI’ tailored for specific tasks or industries. These investments aim to alleviate supply bottlenecks by addressing the structural labor shortage in the aging population. According to the plan’s estimates, investments in semiconductors by fiscal 2040 will generate an economic multiplier effect of 443 trillion yen, while investments in physical AI and vertical AI are expected to yield 144 trillion yen and 222 trillion yen, respectively.
The investment plan is part of Japan’s ongoing efforts to revitalize its chip industry. Since the new strategy was announced in 2021, the government has allocated approximately 7.2 trillion yen to semiconductors and artificial intelligence, according to the Ministry of Industry. From this total, funds have been designated for specific projects, including the state-owned chip manufacturing company Rapidus Corp., which has received state support of about 2.6 trillion yen.
Economic forecasts and debt burden
The government also released long-term economic and fiscal forecasts on Wednesday, detailing Takaichi’s growth strategy under three scenarios. In the most optimistic scenario, where the strategy is implemented as planned, the debt-to-GDP ratio is expected to steadily decline, even if the government contributes 10 trillion yen annually in real spending on the plan. In the other two scenarios—where technological and market uncertainties limit the strategy’s effectiveness, or where current trends continue—the ratio is projected to begin rising again during the 2030s. All three scenarios assume inflation stabilization at around 2%.
The Takaichi government has shifted its fiscal policy focus to reducing the debt-to-GDP ratio, moving away from the primary balance target that guided state policy for over two decades. The debt-to-GDP ratio is generally easier to improve during periods of inflation. The forecasts underscore how heavily Japan’s fiscal outlook relies on the success of Takaichi’s growth program. The estimates do not account for expenses related to any increase in defense spending or potential reductions in the consumption tax, suggesting that fiscal pressure could be greater than the forecasts indicate.
Takaichi’s economic program has elicited mixed reactions from investors. In the stock market, her push for large-scale investments helped the Nikkei 225 index briefly surpass 70,000 for the first time in history this month. Meanwhile, concerns about fiscal sustainability have contributed to rising yields on super-long-term Japanese government bonds, reaching multi-year highs earlier this year.
Source: Bloomberg