Toward a "Strong and Prosperous Japan": Public-private investment of 370 trillion yen across 17 sectors by 2040

A joint meeting of the Council on Economic and Fiscal Policy and the Council for Japan's Growth Strategy has unveiled a public-private investment roadmap. The roadmap outlines a combined investment exceeding 370 trillion yen by 2040 across 17 strategic sectors under the Japan Growth Strategy. Furthermore, in the upcoming fiscal year's budget requests, the government will establish a "Strong and Prosperous Japan" investment category. This framework will feature no upper limit on requests and will be based on multi-year planning, shifting the nation away from its heavy reliance on supplementary budgets. To unleash Japan's latent growth potential, Prime Minister Sanae Takaichi stated: "We will break away from the cycle of excessive austerity orientation and underinvestment in the future. We are committed to fully backing the social implementation and entry into new markets for those who possess these world-leading technologies."

Since the turn of the 21st century, Japan has ranked second globally in the number of Nobel laureates, demonstrating an immense accumulation of achievements in basic science. Building upon this foundation, Japan holds high technical capabilities in fields such as perovskite solar cells, quantum computers, next-generation innovative nuclear reactors, biopharmaceuticals, unmanned marine vehicles, and physical AI. However, a major challenge facing Japan is that these capabilities have not been sufficiently translated into commercial business success.

The root cause of this bottleneck lies in an excessive focus on austerity and underinvestment. Under conventional bureaucratic guidelines, even highly successful initiatives were forced to shut down after five years (currently three years) to make way for new projects. This created unnecessary drains on time and energy, resetting progress and restricting innovators. In addition, shrinking the budget scale reduced the effectiveness of investments, causing private companies to lose incentive to participate.

To shatter this impasse and drive the Japan Growth Strategy forward, the government has finalized a public-private investment roadmap. It focuses on major products and technologies prioritized as catalysts for growth and risk-management investments across 17 strategic fields. These sectors include physical AI, all-photonic networks, quantum computing, rockets and launch sites, unmanned marine vehicles, next-generation shipping, biopharmaceuticals, perovskite solar cells, plant factories, fusion energy, and gaming.

The roadmap clarifies the winning strategies for 62 core products and technologies, projecting that the scale of expected public-private investments will exceed 370 trillion yen in total by 2040. For instance, in the field of physical AI, Japan aims to secure international competitiveness by leveraging its abundant on-site data and manufacturing foundations to accelerate deployment and overcome a shrinking workforce. By establishing a domestic, multimodal foundation ahead of the rest of the world, which will serve as the baseline for physical AI development across various industries like manufacturing, logistics, and nursing care, the government projects 10.5 trillion yen in public-private investment by fiscal 2040. When combined with the semiconductors that form the core of these systems, that figure rises to 78.5 trillion yen.

Additionally, the government presented a "Regional Future Strategy" designed to promote regional investment, create local employment, and foster an ecosystem for human resource development by strategically forming large and small industrial clusters. It consists of three frameworks: the Strategic Industrial Cluster Plan, the Regional Industrial Cluster Plan, and the Local Industry Growth Plan. The Strategic Industrial Cluster Platforms industrial clusters starting from large-scale investments by companies related to the 17 strategic fields. Within the context of the Regional Industrial Cluster Plan, prefectures take the lead in forming industrial clusters. Through the Local Industry Growth Plan, municipalities or prefectures encourage the development of diverse industries utilizing regional resources rooted in the area, such as agriculture and fisheries, food processing, tourism and sports business, and traditional crafts. The government plans to publish the first round of plans for the Strategic Industrial Cluster Plans in 17 strategic fields such as semiconductors, next-generation shipping, and rockets/launch sites, as well as the Regional Industrial Cluster Plans focusing on distinctive regional industrial fields such as food processing, hydrogen, and storage batteries.

The strategy addresses eight cross-cutting challenges, including "New Technology-Based Nation/Strengthening Competitiveness," "Startups," "Human Resource Development," and "Cybersecurity." To establish a core network of universities capable of strengthening industrial competitiveness mostly in the 17 strategic fields, a new system will be created to accredit universities that possess exceptionally high research capabilities in specific fields and demonstrate advanced institutional management. These institutions will receive medium- to long-term support for research, development, and social implementation. Additionally, the plan includes the expansion and strengthening of baseline institutional funding alongside diverse competitive research grants.

The Fiscal Year 2027 budget represents the first budget built entirely from the initial guidelines under the Takaichi Cabinet. During the compilation process, the government will fundamentally overhaul its budget-making methodology to elicit truly effective policies based on fresh ideas and perspectives from both public and private sectors, breaking away from historical extensions and constraints. Supplementary budgets will be strictly limited to highly urgent matters, while ongoing initiatives will, in principle, be funded through the initial budget. This shift aims to end reliance on supplementary appropriations and increase predictability for businesses and local governments.

Specifically, the "Strong and Prosperous Japan" investment category will be introduced. This framework will target initiatives that highly stimulate domestic private capital investments and significantly boost the nation's latent growth rate, such as those aligning with the public-private roadmaps and cross-cutting challenges. Furthermore, to capture truly effective investment support measures, the government will eliminate the traditional request ceiling, allowing necessary funding amounts to be appropriately requested, including itemized contingency requests. Budgetary provisions under this new investment category will fundamentally be based on multi-year plans. The progress of these plans will be reviewed periodically, and budgets showing weak investment-inducing effects will be revised flexibly. Financial rules governing public funds will also be overhauled, including waiving the current rule that generally restricts budget provisions to a maximum of three years.

The government estimates that if Japan's latent potential is fully unlocked through the publication of this investment roadmap and subsequent budget overhauls, the nation can achieve robust economic growth by 2040. The annual domestic private capital investment will increase to 230 trillion yen and nominal GDP will rise close to 1,100 trillion yen.