Japan’s prime minister, Sanae Takaichi, is proposing ¥370tn (£1.7tn) of extra investment across 17 industrial sectors by 2040, aiming to raise productivity, strengthen Japan’s position in artificial intelligence and reduce dependence on trade with China. The scale and lack of clear funding have alarmed investors and some members of her own party, who fear a market reaction similar to the turmoil caused by Liz Truss’s unfunded UK tax plans.

Japan already has a long history of heavy public borrowing following financial crises, economic stagnation and the costs of an ageing population; its debt peaked at 260% of GDP in 2020 and was still below but near 230% in 2025. Markets have weakened since the plan was announced in June, government bond yields have risen to 2.8%, their highest for 29 years, and the yen has fallen to 163 against the US dollar, a four-decade low. Higher inflation, a weaker currency and pressure on major companies such as Sony and Toyota add to concerns over the economic outlook.