DUBAI: Japan’s new government is seeking to move away from decades of deflation and cost-cutting by pursuing large-scale investment in strategic technologies, resilient supply chains and productivity growth, Finance Minister Satsuki Katayama said during a World Economic Forum session on Japan’s economic future.
Speaking at the WEF discussion “How can we unlock new sources of growth? Japan’s Turn,” Katayama said Japan is at a “dramatic moment” as Prime Minister Takaichi Sanae’s administration seeks a fresh mandate following the dissolution of the lower house announcement made this week.
“She will take on three major policies and put them to the choice of the Japanese people,” Katayama said, describing the government’s approach as one aimed at reviving growth “through responsible and proactive public finances.”
The session, moderated by Gideon Rachman, brought together senior political and business figures to assess whether Japan’s recent economic momentum can be turned into sustainable long-term growth amid demographic decline and rising geopolitical pressure.
Katayama pointed to signs that Japan is emerging from its long deflationary period, citing stronger confidence, investment and wage growth.
“Japan’s nominal GDP has surpassed 4 trillion US dollars. Capital investment is at record high, and wages have risen over 5 percent for two consecutive years,” she said, adding that the Nikkei average is now “about five times its 2012 level.”
“These results show Japan is shifting from a deflationary, cost-cutting economy to a dynamic, growth-oriented one driven by bold investment and productivity gains,” she said.
Katayama also highlighted improving public sentiment, noting that confidence in politics among young adults had risen sharply and that “almost 50 percent viewed Japan’s future as bright.”
According to Katayama, the government’s growth strategy rests on large-scale public-private investment in areas critical to both economic performance and national resilience, particularly as Japan’s population continues to shrink.
“Achieving a strong Japanese economy requires strategic fiscal action based on responsible and productive public finances,” she said. “We aim to lift incomes, restore consumer confidence and create a richer cycle of improving corporate profitability.”
Among the priority areas, she cited semiconductors, artificial intelligence and robotics.
Katayama also addressed Japan’s position between the US and China, describing the geopolitical pressure as a long-standing reality.
“We are between the United States and China and we cannot move geopolitically,” she said. “The United States is the only country with which we have a national security treaty.”
She said Japan continues to face restrictions from China “without any good reason,” but added that cooperation with the US and G7 partners remains strong, particularly on critical minerals and supply-chain resilience.
Kevin Rudd, former Australian prime minister and current ambassador to the US, said Japan is widely viewed across the Indo-Pacific as a stabilizing economic and strategic force.
“The rest of the Indo-Pacific is very bullish about Japan,” Rudd said. “Japan is seen as a force for strength, for stability, and increasingly for prosperity.”
He said Japan’s push into AI and advanced manufacturing would reinforce regional resilience, noting that supply chains for semiconductors and critical minerals must be broadened beyond a small number of producers.
“Those of us who succeed and adapt to the AI universe will prevail,” Rudd said.
From a corporate perspective, Takayuki Morita, president and CEO of NEC, said Japan’s shrinking workforce makes the adoption of AI and robotics less socially contentious than in other economies.
“Japan is suffering from a shortage of workforce,” Morita said. “Everybody is happy to get robotics and AI into the real world.”
Morita argued that Japan has strengths in applying AI to real-world industrial and infrastructure settings, particularly through the use of proprietary and physical data rather than internet-based models alone.
“Japan is one of the few countries that can develop large language models from scratch,” he said, adding that this positions the country to contribute to global technological stability beyond the US-China rivalry.
However, some business leaders warned that structural and cultural barriers remain. Mazen Darwazeh, executive vice-chairman of Hikma Pharmaceuticals, said Japan’s innovation potential has not always translated into openness for foreign companies.
“Japan is a first-class country with first-class technology, but at the same time, it is a closed society whereby it’s difficult for outsiders to do business,” he said.
Darwazeh also pointed to regulatory obstacles in pharmaceuticals and clinical research, arguing that greater openness would be essential as Japan confronts demographic decline and global competition.
