The administration of Prime Minister Sanae Takaichi approved its first economic policy roadmap on July 21. It lays out plans to more than double the pace of Japan’s annual economic growth to over 1% with projected public and private investment across 17 strategic areas totalling 370 trillion yen ($2.3 trillion) through the 2040 fiscal year.
The plan removed a pledge made in previous prime ministers’ economic blueprints to restore Japan’s fiscal health, instead vowing to boost growth and achieve “fiscal sustainability”.
Takaichi's investment plan lacks substance
Extraordinary claims require extraordinary evidence. On that score, Prime Minister Sanae Takaichi's 370 trillion yen ($2.3 trillion) investment plan, unveiled in Tuesday's economic and fiscal roadmap, falls woefully short. It singularly fails to provide any substantive detail about how the scheme would work. She'd be better off ditching it in favour of a smarter, more flexible alternative.
Translated literally as "big-boned policy", the honebuto envisages injecting the cash into 17 sectors over the next 14-plus years to more than double Japan’s economic growth to over 1%. It’s a sharp break with previous leaders’ sober policy blueprints and is in some respects reminiscent of Beijing's Five-Year Plans, which set national growth targets and direct industrial policy.
But Chinese officials are meticulous planners, limit their outlook to five years and enjoy levels of control over banks and business that Japan’s prime minister can only dream of. Takaichi's goals also include widening Japan’s tax base through faster growth that vanquishes households’ inflationary pain and concerns over the national debt pile in one go.
Yet the new plan’s removal of a standard vow to restore Japan’s fiscal health conjures up a potential nightmare of profligate spending backed by debt issuance. Fears over that scenario have sent bond yields soaring and are further dragging down the yen, which has tumbled more than 10% against the dollar since Takaichi's rise to power in October.
A separate fear is that the government could mandate unwieldy investments by publicly listed companies already committed to improving governance and shareholder returns — part of a vital, longer-standing plan to boost efficiency and offset super-ageing Japan’s demographic drag. That’s assuming Tokyo can even find enough projects to spend the money on: so far, for example, it has only committed $2 billion in financing of the $550 billion Takaichi's predecessor pledged to invest in the U.S. as part of last year's tariff negotiations.
Better to ditch the spending target and instead offer companies financial incentives to spur productive spending, much as the Inflation Reduction Act did for renewable energy in America before President Donald Trump’s assault on the sector. That generated $500 billion of investment, with private capital accounting for up to six times that provided by the public purse, a 2024 study by Rhodium and MIT found. A similar plan would lack the rhetorical oomph Japan's prime minister seems to favour in policy pronouncements but put far more meat on the bones.
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