Can Japan avoid a Liz Truss-style shock as its PM embarks on a giant spending spree?
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.
- Japan’s huge investment plan has unsettled markets and investors.
- Critics fear unfunded spending could trigger a Truss-style shock.
- Debt, bond yields and yen weakness heighten the risks.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Supporters argue that Japan cannot afford complacency as an ageing population, weak productivity and strategic dependence on China threaten its long-term prosperity. Large, targeted investment in areas such as artificial intelligence and advanced industry could crowd in private capital, create higher-value jobs and strengthen economic resilience. They contend that a long-term programme is not equivalent to a sudden, unfunded tax cut, particularly if spending is phased, disciplined and paired with credible financing plans.
The case against
Critics argue that the proposal risks compounding Japan’s already exceptional public debt at a time when borrowing costs, inflation and currency weakness are worsening. Without clear funding, prioritisation and safeguards, investors may reasonably doubt that promised future growth will cover the immediate fiscal burden, pushing up bond yields and weakening the yen further. They value industrial renewal but maintain that it should be pursued through smaller, properly costed measures and reforms that do not test market confidence.