Japan's $2.3 trillion growth gamble: AI, chips and space to power its economy through 2040

Japan is preparing a sweeping long-term investment strategy worth about $2.3 trillion, betting that massive public and private spending on artificial intelligence, semiconductors, space technology and other strategic industries can revive growth and strengthen the country's economic security through 2040.

Prime Minister Sanae Takaichi's government plans to set a target of 370 trillion yen ($2.3 trillion) in combined investment across 17 strategic sectors, according to a report by Nikkei. The initiative, expected to be unveiled as early as next week, would represent one of Japan's most ambitious industrial policy programmes in decades.

The plan reflects Tokyo's growing determination to secure its position in critical technologies as competition intensifies among major economies. It also underscores a broader shift in economic thinking, with governments increasingly taking a more active role in directing investment towards industries deemed vital for future growth and national security.

Under the proposal, sectors including artificial intelligence, advanced semiconductors, space development and other strategically important technologies would receive policy support designed to attract substantial private-sector investment. The government hopes public spending will serve as a catalyst, encouraging businesses to commit capital to projects that could otherwise face high costs or long development timelines.

More from Business

The strategy comes as Japan seeks new engines of growth after years of sluggish economic expansion, an ageing population and persistent concerns about its international competitiveness. Policymakers view technological leadership as essential not only for economic growth but also for reducing dependence on foreign supply chains in critical industries.

According to the Nikkei report, the government is considering the creation of a multi-year budget framework to provide stable and predictable funding for investments linked to economic security objectives. Such a mechanism would allow long-term projects to proceed without being constrained by annual budget cycles.

Officials are also exploring the use of bridging bonds to help finance some of the spending. These bonds are designed to meet temporary funding needs and are issued with identified sources for repayment, allowing the government to argue that it remains committed to fiscal discipline even as it expands investment.

The financing debate is particularly significant in Japan, which already carries one of the highest public debt burdens among advanced economies. Any increase in government spending is likely to face scrutiny from investors and economists concerned about the country's fiscal sustainability.

Japan has already increased support for domestic chip production in recent years, offering subsidies to attract foreign investment and strengthen local supply chains. The new investment blueprint would broaden those efforts into a more comprehensive national growth strategy spanning multiple industries.

With inputs from agencies.