Grand Design and Action Plan for a New Form of Capitalism, 2025 Revised Edition
The "Grand Design and Action Plan for a New Form of Capitalism, 2025 Revised Edition," was approved at a Cabinet meeting on June 13, 2025. It is a comprehensive policy blueprint from the Japanese government outlining its strategy to fundamentally reshape the nation's economy. It presents a vision to transition away from the deflationary mindset that has characterized the past three decades and establish a new, growth-oriented economic model. The central thesis of the plan is that a virtuous cycle of robust wage growth and active investment is the key to achieving sustainable prosperity. This summary will elaborate on the key pillars of this ambitious plan.
I. Realizing a Growth-Oriented Economy Driven by Wages and Investment
The plan's introductory chapter frames the current moment as a historic turning point for Japan. After years of effort, the nation is seeing positive signs, such as two consecutive years of wage increases exceeding 5% in spring labor negotiations and nominal GDP surpassing 600 trillion yen. The core objective is to solidify these gains and create a "growth-oriented economy." To achieve this, the government aims to establish a new societal "norm" where real wage growth consistently surpasses 1% annually, meaning wage increases must outpace inflation. This is described as the very starting point of the new growth strategy.
To facilitate this, the government acknowledges it must lead by example. A key initiative is a comprehensive review of all government systems and regulations that became entrenched during the deflationary era. This includes a critical re-evaluation of public procurement practices, which often relied on fixed or low-cost contracts, and a commitment to ensuring that government tenders properly account for rising labor and material costs. The government will also reform public service pricing in sectors like healthcare, long-term care, and childcare to ensure that wage increases are possible for workers in these essential fields. By taking these steps, the government seeks to act as a catalyst for fair pricing across the economy and permanently dismantle the deflationary psychology among both consumers and businesses.
II. A Five-Year Plan for Wage Growth in Small and Medium-sized Enterprises (SMEs)
Recognizing that SMEs employ approximately 70% of Japan's workforce, the plan dedicates a significant section to a five-year strategy (through fiscal year 2029) aimed at enabling these businesses to raise wages. This pillar is broken down into several critical components.
First is the critical issue of price pass-through and fair trade practices. The plan identifies the inability of SMEs to pass on rising costs, including labor costs, to their larger clients as a primary obstacle to wage growth. To combat this, the government will strengthen its "Public Procurement Policy Package," ensuring that both national and local government contracts reflect current costs. This includes a strict prohibition on using previous low-bid prices as a baseline for future contracts. The Subcontract Act will be rigorously enforced to prevent unfair practices, and new guidelines will be disseminated to normalize the inclusion of labor cost increases in price negotiations throughout the supply chain.
The second component is a massive push to increase the productivity of SMEs, with a special focus on the service sector. The plan acknowledges that Japan faces significant labor shortages, which necessitates investment in labor-saving technologies. A "Labor-Saving Investment Promotion Plan" will be implemented, targeting 12 specific industries that are particularly affected by labor shortages and the impact of minimum wage increases, such as food service, accommodation, retail, transportation, and construction. The government will support a target of approximately 60 trillion yen in private-sector productivity-enhancing investment over five years. This will be facilitated through streamlined subsidies, including "catalog-style" and "made-to-order" options for purchasing labor-saving equipment and IT tools. A nationwide support network, involving local Chambers of Commerce, financial institutions, and expert advisors, will provide hands-on assistance to help SMEs identify and implement the most effective productivity solutions.
Third, the plan addresses the demographic challenge of business succession and M&A. With a large number of SME owners reaching retirement age, there is a risk of profitable businesses closing down simply for lack of a successor. The government will create a comprehensive support system to facilitate smoother business handovers. This includes providing support for sellers to overcome anxieties about M&A, enhancing the capabilities of public and private M&A advisory services, creating a more transparent market for business valuations, and offering financial aid for the M&A process.
Finally, this section ties back to human capital development at the regional level. The plan outlines measures to foster "Advanced Essential Workers" who can command higher wages through the use of digital skills. It also details support for broad-based reskilling to adapt to AI and other technological advancements, and reaffirms the government's commitment to raising the national average minimum wage toward 1,500 yen per hour, supported by the productivity and price-pass-through measures.
III. The Realization of an "Investment Nation"
This chapter broadens the focus from domestic SMEs to a larger strategy of stimulating massive investment across the economy, setting a new national target of 200 trillion yen in domestic investment by 2040. The goal is to connect the domestic cycle of wage growth with global market opportunities, thereby strengthening Japan's overall "earnings power."
A key element is fostering the growth of mid-sized enterprises, which are seen as having significant potential for innovation, investment, and exports. The plan aims to provide seamless support to help these companies scale up and expand their global reach.
The plan heavily emphasizes investment in "new winning fields" where Japan can leverage its strengths to address global challenges. These include healthcare (leveraging its super-aging society as a testbed for new technologies), disaster prevention technology, agriculture and food industries (aiming for 5 trillion yen in exports by 2030), and the content industry.
The twin pillars of Green Transformation (GX) and Digital Transformation (DX) are central to the investment strategy. For GX, the government will leverage its carbon pricing framework and over 20 trillion yen in advanced investment to stimulate over 150 trillion yen in public-private investment in decarbonization technologies over the next decade. For DX, the plan calls for continued heavy investment in the AI and semiconductor industries, supported by a dedicated "AI and Semiconductor Industry Infrastructure Framework," and the build-out of essential digital infrastructure like data centers, especially in regional areas.
This section also covers strengthening investment in economic security, including securing domestic supply chains for critical goods, encouraging investment from private equity funds, and removing bottlenecks to domestic investment, such as the lack of available industrial land.
IV & V. Strengthening Startups, Science, and Technology
These chapters outline the strategy for fostering innovation. The government will enhance its "Five-Year Startup Promotion Plan" with the goal of making Japan a leading global startup hub. A key focus is shifting the ecosystem beyond Tokyo by establishing and strengthening regional startup hubs, improving access to funding for deep-tech ventures that require long-term capital, and increasing government procurement from innovative young companies.
To bolster science, technology, and innovation, the plan calls for strategic, end-to-end support for critical technology areas. This involves not only funding basic research but also creating a robust ecosystem to commercialize those findings. The government will promote stronger university-industry collaboration and strategic investment in high-priority fields such as quantum computing, fusion energy, advanced materials, space exploration, and healthcare. The plan also emphasizes the need to reform the R&D tax credit system to provide more effective incentives.
VI. Investment in People and Cultivating Diverse Talent
This chapter details the "human capital" component of the New Capitalism vision. The cornerstone is the acceleration of a "three-in-one labor market reform." The three pillars are: 1) promoting reskilling and upskilling for all workers to adapt to new technologies and industries; 2) encouraging the adoption of job-based HR systems, moving away from traditional seniority-based pay to reward skills and performance; and 3) facilitating smoother labor mobility between companies and industries, ensuring talent can move to where it is most productive.
The plan also seeks to promote a more diverse and flexible workforce. This includes creating a better environment for side-jobs and freelancing, improving the treatment and security of non-regular workers through the strict application of the "equal pay for equal work" principle, and conducting a comprehensive review of work-style regulations. Furthermore, it calls for reforms to better attract and integrate skilled foreign talent into the Japanese workforce and expand student mobility programs.
VII. Deepening the "Asset Management Nation" Initiative
To complete the economic cycle, the plan aims to channel Japan's vast household savings into productive investments. This chapter details the deepening of the "Asset Management Nation" initiative. A central tool is the promotion of the new, expanded NISA (Nippon Individual Savings Account) to encourage long-term, diversified investment by households. This will be supported by a nationwide push to improve financial and economic literacy for all age groups.
The initiative also targets the supply side of the financial industry. The government will push for reforms within the asset management industry itself to make it more competitive, innovative, and customer-centric. This includes supporting emerging asset managers, improving the back-office systems that underpin the industry, and exploring the introduction of new services like wealth management. The plan also designates four cities (Hokkaido, Tokyo, Osaka, Fukuoka) as special zones for finance and asset management to attract global talent and firms.
VIII. Upgrading Regional Economies
This chapter focuses on ensuring that the benefits of the New Capitalism agenda are felt across the entire country, not just in major metropolitan areas. The strategy involves creating innovation hubs in regional areas by strengthening local universities and promoting collaboration between academia, industry, and government. The government will use incentives, such as the reformed corporate "hometown tax", to encourage companies to invest and establish facilities in the regions.
A major component is the modernization of regional infrastructure for a new era. This includes accelerating the deployment of automated driving services to address transportation gaps, ensuring nationwide coverage of 5G and fiber-optic networks, and promoting the use of digital solutions for agriculture, disaster prevention, and local services. The plan also details a special focus on the recovery and industrial revitalization of the Tohoku region (following the 2011 earthquake and tsunami) and the Noto Peninsula (following the 2024 earthquake), aiming to turn these recovery efforts into models for future regional development.
IX. Ensuring Steady Implementation and Follow-Up
The final chapter outlines the mechanisms for ensuring the plan's execution. The government commits to a process of rigorous follow-up and review, using Key Performance Indicators (KPIs) and Evidence-Based Policymaking (EBPM) to track progress and make necessary adjustments. The plan underscores that realizing a New Form of Capitalism requires a concerted, whole-of-government approach where the public sector acts to unlock the full potential of the private sector. The ultimate goal is to create a dynamic, resilient, and inclusive economy that can achieve sustainable growth and distribute its benefits widely, finally and decisively breaking free from the legacy of deflation.
Norbert Gehrke
