Japan’s quiet revolution

• Enguerrand Artaz
  Strategist
  La Financière de l’Échiquier (LFDE)

And, apart from Chinese visitors, the initial figures for 2026 show no sign of this trend slowing down. But behind this tourism boom lies an economic transformation that is as discreet as it is fundamental. Japan is not merely emerging from decades of sluggish growth and the threat of deflation. Faced with the strategic challenges of a shrinking population, energy dependence and the race for AI, the country is undergoing a profound restructuring of its economic model.

This begins with the new industrial policy announced by Sanae Takaichi’s government, structured around 17 strategic sectors, including AI, defence, semiconductors, quantum technology, critical materials and cybersecurity. The government’s aim is to create public-private investment roadmaps for each sector, coupled with multi-year budgetary commitments, whilst emphasising cross-sectoral synergies. This major boost to strategic investment is set to help Japan catch up in certain sectors, such as semiconductors, where the country is aiming for self-sufficiency through its Rapidus project, supported by the state and several major national groups. But Japan will also be able to build on its strengths. This is particularly true in the field of physical AI – robotics and intelligent machines – where the country enjoys a structural advantage thanks to its long-standing expertise in automation. 

This focus on physical AI is not merely an industrial strategy or a means of boosting productivity. For Japan, it is also a societal issue. Faced with the archipelago’s continuing demographic decline, physical AI is becoming a solution to labour shortages rather than a means of replacing the workforce. This distinction significantly reduces social resistance and should therefore accelerate adoption, particularly in sectors where labour shortages are most acute. Japan could thus become a pioneer in the large-scale deployment of this technology.

The other major driver of transformation in the Japanese economic model is energy. Japan currently imports 90 per cent of its energy requirements, making it particularly vulnerable to geopolitical shocks and disruptions to production. To address this issue, Japan’s strategy now rests on three pillars: diversifying fossil fuel supplies, restarting nuclear power, and developing renewables. This final challenge – and, more broadly, the financing of the energy transition – requires the issuance of dedicated bonds known as ‘transition bonds’, particularly through the government’s GX (Green Transformation) programme. This programme aims to mobilise around 150,000 billion yen (approximately 1,000 billion dollars) in public and private investment by 2030.

Finally, on the financial markets front, Japan is beginning to benefit from the reform of the Tokyo Stock Exchange launched in 2023, which aims to improve the capital efficiency of Japanese companies and their dialogue with shareholders. Combined with the fall in the yen, this reform has led to a sharp rise in the valuation of the Japanese market, which has significantly outperformed the US and European markets since the end of 2023¹ However, the range of structural changes underway in Japan could further enhance the appeal of Japanese assets, which, after having long been overlooked, are now regaining their rightful place in a diversified portfolio.

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¹The Topix index compared with the S&P 500 index and the EuroStoxx index; performance with dividends reinvested, in local currencies, as at 25 June 2026