Targeting a JPY370 trillion investment goal for 2040! Japan plans to launch a government-backed loan program to break through financing bottlenecks in strategic industries.

The Japanese government said on Thursday that it is considering launching a program to channel public funds through private lenders to support corporate investment. The move is aimed at easing financing constraints faced by banks and accelerating investment in strategic growth areas. It is understood that the Ministry of Economy, Trade and Industry (METI) is studying an expansion of a financing framework under which the government-backed Japan Finance Corporation (JFC) would provide funds to commercial banks, which would then extend loans to companies undertaking large-scale investments and M&A. The proposal was presented at a public-private investment forum. The forum was established under the Japanese government's asset management strategy and is intended to improve the flow of capital to key growth areas and large corporate investment projects. Under the proposal, the government would also provide partial loss guarantees for eligible loans, thereby reducing the credit risk faced by lenders and encouraging them to finance projects deemed important to Japan's long-term growth strategy. As part of a broader growth strategy, the government led by Prime Minister Sanae Takaichi has set a goal of mobilizing more than JPY370 trillion (about US$2.4 trillion) in public and private investment by fiscal 2040 in strategic areas including semiconductors and artificial intelligence (AI). In addition to AI and semiconductors, investment priorities also include defense, space development, advanced manufacturing and the shipbuilding industry. The Japanese government believes that, as geopolitical risks rise and competition in key technologies intensifies, these industries have become important pillars for safeguarding national economic security. The plan is seen as a core pillar of the Japanese government's economic strategy. Against the backdrop of intensifying global technological competition, the growing importance of supply chain security and Japan's deepening population aging, Japan hopes to enhance economic security, ease labor shortages and revitalize long-term growth momentum through large-scale industrial investment. As companies increase investment in the 17 priority areas identified by the Japanese government, financing demand is expected to grow further. At the same time, however, large-scale, long-term investment projects tend to be riskier, and obtaining funds solely from private financial institutions also faces greater obstacles. The Japanese government's previously released medium- to long-term fiscal outlook shows that fiscal sustainability depends heavily on the actual effectiveness of the growth strategy. In the most optimistic scenario, even with about JPY10 trillion in additional fiscal spending each year, the debt-to-GDP ratio is still expected to trend downward; but if technological breakthroughs or market demand fall short of expectations, the ratio could reverse course and rise again in the 2030s. Under the option currently being considered by the Japanese government, the core is for the government-backed Japan Finance Corporation (JFC) to provide funds to commercial banks, which would then issue loans to companies, while the government provides partial loss guarantees for eligible loans. Such an arrangement is expected to leverage private capital participation in strategic investment without relying entirely on direct government appropriations, but it may also transfer part of corporate financing risk to the public sector. Therefore, in the short term, the plan may not significantly increase the Japanese government's direct fiscal spending; but if the scale of guaranteed loans continues to expand, or if investment projects in areas such as semiconductors and artificial intelligence incur relatively large losses, the government's fiscal risk could gradually rise.