Japan's "Sanae Economics" Faces Scrutiny Over Fundamental Economic Misconception

The Takayaki Sanae administration is planning a major economic growth strategy that targets approximately 370 trillion yen in combined public and private investment through fiscal year 2040. This translates to roughly 25 trillion yen annually, representing a substantial investment initiative spread across seventeen strategic sectors including artificial intelligence, semiconductors, quantum technology, defense, aerospace, pharmaceuticals, nuclear fusion energy, national resilience, and content industries.

The large-scale investment approach aligns with broader geopolitical trends, as Western governments have similarly expanded government-led strategic investments in response to competitive pressure from China. From an economic security perspective, the government's emphasis on crisis management and growth-oriented investments has merit, and critics argue that relying solely on primary balance (PB) targets as the exclusive fiscal measure is problematic.

However, according to economists, the theoretical foundation underlying "Sanae Economics" contains a fundamental conceptual flaw that is becoming recognized as common knowledge within the economics profession. The criticism centers on what analysts describe as a "basic mistake" in the government's planning approach, specifically regarding the treatment of accounting identities as policy objectives. This approach, sometimes referred to as "fund demand theory," raises concerns about the potential long-term consequences and logical inconsistencies embedded in the strategy's economic reasoning.