Belle Chang, MBA
David McNay, CFA
key takeaways
- Japan’s growth strategy has moved from broad policy direction to a concrete investment roadmap, with the cabinet having approved a JPY370 trillion (~$2.4 trillion package).
- The framework is broad based – targeting 17 strategic sectors and 62 products in areas from AI to healthcare to anime & gaming.
- For investors this is not a laser focused bet on one industry, like AI, but rather a broad tailwind that may affect circa. half of the sectors in the FTSE Japan Index.
Prime Minister Takaichi and her team have been busy in the six months since her landslide election victory in February. Japan’s Growth Strategy has moved from broad policy direction towards a more concrete investment roadmap. In July, the Cabinet approved a strategy that builds on the 17 strategic fields identified by the Takaichi administration, into 62 priority products and technologies and targeting more than JPY 370 trillion (~ USD 2.4 trillion) of investment through FY2040.
Importantly, the JPY 370 trillion target represents a combined public- and private investment roadmap rather than government spending alone. The public-private split is unknown, which makes the fiscal implications uncertain, but suggesting that the direct fiscal burden could be considerably smaller than the headline figure implies. Cabinet approval is not the same as parliamentary approval, but as we discussed in “Can the rock star of Japanese politics drum to the beat of the markets?”, the Prime Minister’s supermajority should help reduce political friction.
The framework is intended to strengthen Japan’s supply capacity and competitiveness in strategically important industries, with multi-year policy support and sector-specific investment targets. AI and semiconductors are among the largest areas of focus, but the strategy extends beyond technology into defense, healthcare, energy, natural resources, content and other areas.
This breadth is particularly relevant for Japanese equities. Unlike Asian peers Korea and Taiwan, whose markets are dominated[note1] by Technology and physical-AI-enabler-related sectors, the Japanese equity market is relatively more balanced across industries. The Growth Strategy’s support across a diverse range of strategic fields could therefore translate into a broader set of equity beneficiaries, rather than concentrating on the policy tailwind in a small number of AI or technology related areas.
Figure 1: FTSE Japan industry weights
Mapping FTSE Japan's subsectors against the 17 strategic fields suggests that around 51% of the index may benefit from the Growth Strategy; excluding Financials[note2] then circa. 60% of the FTSE Japan Index has some exposure to the government's strategic priorities. This highlights the breadth of the initiative: unlike a narrowly targeted technology policy, the Growth Strategy spans AI and semiconductors, digital infrastructure, defense, aerospace, advanced materials, energy, healthcare, logistics, food technology and content.
How are the policy-exposed sectors performing?
YTD FTSE Japan has risen 21.9%, as of September 2026, outperforming most of other APAC markets, and the FTSE All-World Index (13.3%). Importantly, several sectors exposed to the Growth Strategy also outperformed their respective peers.
Figure 2: Japan's policy-exposed sectors – performance versus regional and global peers
Electronic and Electrical Equipment, and Technology Hardware and Equipment performed strongly, ahead of global counterparts. As discussed in Digital AI to physical AI enablers: Asia benefits, these sectors sit at the heart of Japan's physical AI ecosystem, and are benefiting from the global AI capex cycle as well as domestic policy support. The Growth Strategy reinforces this structural theme: AI and semiconductors are among its largest areas of planned investment, including semiconductors, physical AI, cloud and data-center infrastructure.
Several industrial sectors, including Chemicals, General Industrials, Industrial Metals and Mining, and Industrial Support Services, have also outperformed global peers, while appearing more attractively valued on measures like PB/ROE. Many of these industries are related to physical AI enablers and advanced manufacturing, such as semiconductor equipment, automation, specialty materials and critical resources.
Industrial Support Services’ constituents capture several themes. Major trading houses, including Mitsui & Co., Sumitomo Corp. and Marubeni, have diversified businesses spanning to resources, energy, infrastructure and critical materials, creating exposure to areas prioritized under the Growth Strategy, such as resource and energy security and GX. The Growth Strategy is therefore potentially supportive not only of specialist technology companies, but also of diversified Japanese businesses that finance, develop and operate strategic assets across multiple industries.
Telecommunications Service Providers look richly valued relative to peers but largely that is the inclusion of SoftBank – which has material direct exposure to the broader AI theme. Beyond SoftBank other names tap into next-generation wireless and submarine cables which are targeted products in the Growth Strategy.
Leisure Goods, mainly led by Toys stocks, outperformed regional and global peers. Takaichi’s government has identified games, anime, manga, music and live-action content as part of the 17 strategic fields, aiming to expand the global reach and monetization of Japanese intellectual property. For instance, the Toys subsector offers a relatively direct link through stocks like Bandai Namco. The company operates an IP-centric business model spanning anime, manga, games and character merchandise, allowing popular Japanese IP to be monetized across multiple products and markets. Bandai Namco's strategy also increasingly emphasizes overseas expansion and maximizing the value of its IP, closely aligning with the government's ambition to turn Japan's strength in content into a larger global industry.
In contrast, performance has been more mixed in healthcare-related sectors. Pharmaceuticals and Biotechnology have delivered only modest returns despite healthcare being one of the 17 strategic fields. Near-term industry and company-specific headwinds have continued to outweigh the potential benefits of longer-term policy support in parts of the healthcare sector.
Figure 3: P/B versus ROE for Japan’s policy-exposed sectors and global peers
Source: FTSE Russell and LSEG. Data as of September 2026. Past performance is not a guide to future returns. Please see the end for important legal disclosures.
| Series | Point | ROE (%) | P/B (x) |
|---|---|---|---|
| Japan | 1 | 5.4 | 0.8 |
| Japan | 2 | 6.0 | 1.0 |
| Japan | 3 | 6.3 | 1.6 |
| Japan | 4 | 7.2 | 4.0 |
| Japan | 5 | 7.6 | 0.9 |
| Japan | 6 | 8.8 | 1.0 |
| Japan | 7 | 9.4 | 1.0 |
| Japan | 8 | 10.0 | 1.0 |
| Japan | 9 | 10.7 | 2.4 |
| Japan | 10 | 11.2 | 1.7 |
| Japan | 11 | 11.6 | 2.2 |
| Japan | 12 | 12.0 | 4.8 |
| Japan | 13 | 12.3 | 1.9 |
| Japan | 14 | 12.8 | 2.4 |
| Japan | 15 | 13.8 | 2.5 |
| Japan | 16 | 14.7 | 2.8 |
| Japan | 17 | 15.3 | 2.4 |
| Japan | 18 | 15.8 | 3.8 |
| Japan | 19 | 28.5 | 2.1 |
| All World | 1 | 0.8 | 1.0 |
| All World | 2 | 6.7 | 2.5 |
| All World | 3 | 8.8 | 2.0 |
| All World | 4 | 9.4 | 2.7 |
| All World | 5 | 10.0 | 3.1 |
| All World | 6 | 10.8 | 2.1 |
| All World | 7 | 11.4 | 2.6 |
| All World | 8 | 12.0 | 2.3 |
| All World | 9 | 12.8 | 3.0 |
| All World | 10 | 13.2 | 5.5 |
| All World | 11 | 14.0 | 3.3 |
| All World | 12 | 14.8 | 3.6 |
| All World | 13 | 16.5 | 5.2 |
| All World | 14 | 21.0 | 7.8 |
| All World | 15 | 21.8 | 2.0 |
| All World | 16 | 23.2 | 4.9 |
| All World | 17 | 25.0 | 3.0 |
| All World | 18 | 26.5 | 5.9 |
| All World | 19 | 35.0 | 16.0 |
| Dev APAC ex Japan | 1 | 5.0 | 0.7 |
| Dev APAC ex Japan | 2 | 5.8 | 1.2 |
| Dev APAC ex Japan | 3 | 6.0 | 1.9 |
| Dev APAC ex Japan | 4 | 6.2 | 1.4 |
| Dev APAC ex Japan | 5 | 7.0 | 2.8 |
| Dev APAC ex Japan | 6 | 9.0 | 1.0 |
| Dev APAC ex Japan | 7 | 9.6 | 3.2 |
| Dev APAC ex Japan | 8 | 10.2 | 1.1 |
| Dev APAC ex Japan | 9 | 10.8 | 4.8 |
| Dev APAC ex Japan | 10 | 11.5 | 2.0 |
| Dev APAC ex Japan | 11 | 12.0 | 1.8 |
| Dev APAC ex Japan | 12 | 12.5 | 4.6 |
| Dev APAC ex Japan | 13 | 13.0 | 2.7 |
| Dev APAC ex Japan | 14 | 14.0 | 2.5 |
| Dev APAC ex Japan | 15 | 15.0 | 2.4 |
| Dev APAC ex Japan | 16 | 19.0 | 2.2 |
| Dev APAC ex Japan | 17 | 37.0 | 9.6 |
Conclusion
Since the election in February, PM Takaichi and her administration have been busy trying to turn broad fiscally expansionary policy into tangible policy – identifying 17 strategic fields and 62 priority products. For equity investors these span a wide number of sectors, touching around half of the FTSE Japan Index.
Importantly, this is not a concentrated gust behind just Artificial Intelligence. Rather, it is a broad, multi-year tailwind for several sectors considered strategically important – this includes AI, quantum computing, healthcare, defense, energy security and more.
Gotta grow ‘em all.
footnotes
[1] Technology and physical AI enablers accounted for 73.5% and 93.1% of the FTSE Korea and FTSE Taiwan Indices respectively as of September 30, 2026. | Back to Note 1
[2] Financials represent circa. 18% of the FTSE Japan index but are more difficult to map to the strategic growth sectors as they would form part of the transmission mechanism. | Back to Note 2
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