Japan targets 370 trillion yen investment amid bond market volatility

Prime Minister Sanae Takaichi’s administration has unveiled an ambitious economic plan to mobilize over 370 trillion yen in combined public and private investment by fiscal 2040. The strategy, part of the Basic Policy on Economic and Fiscal Management and Reform 2026, aims to drive nominal economic growth above 3 percent and real growth above 1 percent. The government intends to target 17 strategic fields, including semiconductors and artificial intelligence, to boost nominal GDP to approximately 1,100 trillion yen by 2040.

However, the plan faces significant headwinds from a bond market rout. Rising yields, with the benchmark 10-year yield approaching 3 percent for the first time since the mid-1990s, have raised concerns regarding Japan’s massive debt burden and fiscal stability. Analysts suggest that stubborn inflation and the potential for earlier-than-expected interest rate hikes by the Bank of Japan could undermine Takaichi’s spending agenda. The success of the policy relies on the assumption that economic growth will outpace long-term borrowing costs, a premise currently being tested by market volatility.