The ¥370 Trillion Shift: Winners and Losers in "HONEBUTO", Japan's 2026 Blueprint

By Kenichi Ogura - Former Chief Editor of “PRESIDENT” (Japan’s largest business magazine)

When I ran PRESIDENT, Japan's largest business magazine, I compiled the stock-market special every month. Five and a half years ago, with the Nikkei 225 in the low 20,000 yen’ s, my cover package argued that the index would break 50,000 yen. Analysts called the figure irresponsible. Readers wrote in to say I had traded journalism for fantasy. Today the index trades above 70,000 yen, and the number that once drew ridicule has long since turned out to be a waypoint the market cleared years ago.

I bring this up because it establishes the vantage point from which I now read the draft on my desk: the government's Basic Policy on Economic and Fiscal Management 2026, the annual blueprint known in Japan as the "HONEBUTO," presented to the Council on Economic and Fiscal Policy on June 30, 2026, and headed for cabinet approval in mid-July.

I have read many of these documents. This edition is not, in truth, extraordinary compared to its predecessors. The language, the structure, the ritual of "strategic fields" and "priority allocation" repeat itself annually. But the HONEBUTO still sets an administration's direction for the year, and this one tells foreign investors in plain language where the Takaichi government intends to push capital for the next decade and a half. What follows identifies which of those pushes will make money and which stocks to buy. Because I am a fiscal conservative who believes spending cuts and tax cuts, not subsidies, secure Japan's long-term future, it will also identify the parts of the plan to treat as a warning label.

The core argument is straightforward. The HONEBUTO does hand the stock market a bonus, and riding that bonus is a reasonable trade. But the money should follow Japan's genuine strengths rather than its chronic weaknesses. Strong sectors grow with or without a government check; the subsidy merely accelerates a trajectory already in place. Weak sectors stay weak no matter how much tax revenue is poured into them, because the problem was never capital.

All yen figures below are converted at 162 yen to the dollar, the level the currency broke through after the draft's publication.

Fiscal year 2027 as "Year One"

The draft designates fiscal 2027 as "Year One of Responsible Proactive Fiscal Policy" and lays out a Medium- to Long-Term Economic and Fiscal Plan running from 2027 through 2040. The core target is no longer a primary-balance surplus by a fixed date. It is the stable decline of the debt-to-GDP ratio, achieved through nominal growth rather than austerity. The document says so outright: budget compilation shifts from the uniform-restraint model of the deflation era to one that reflects rising prices and wages and matches an expanding nominal economy.

For equity investors, the most consequential mechanism is the new "Strong and Prosperous Japan" investment framework created for the fiscal 2027 budget. It covers 17 strategic fields - AI and semiconductors, cybersecurity, quantum, defense, aerospace, shipbuilding, energy security, disaster resilience, and others - and it abolishes the ceiling on budget requests for qualifying programs. Ministries request what they judge necessary, including open-ended items with no stated amount. Projections attached to the draft assume cumulative public-private investment exceeding 370 trillion yen (about $2.3 trillion) across 62 designated products and technologies by fiscal 2040, annual private capital expenditure of 230 trillion yen (about $1.4 trillion), and nominal GDP approaching 1,100 trillion yen (about $6.8 trillion) in that year.

Below are the three policy currents within that macro backdrop and the four stocks I rate BUY. Physical AI and the manufacturing renaissance

The centerpiece of the growth strategy is "physical AI" - artificial intelligence that ingests images, video, sound, and physical sensor data to autonomously control robots, machine tools, and vehicles. The draft names physical AI, built on Japan's deep reserves of factory-floor data and manufacturing craft, as the accelerator running through the entire 17-field strategy.

Money is already flowing. On June 30, METI(Ministry of Economy, Trade and Industry) selected Noetra, a company founded in January 2026 with backing from SoftBank, Honda, NEC, and Sony together with the AIST national laboratory, to build a domestic multimodal foundation model for AI robotics. First-year funding is ¥387.3 billion (about $2.4 billion); the five-year program through fiscal 2030 reaches roughly ¥1 trillion (about $6.2 billion). The target is a 1-trillion-parameter model by fiscal 2027, with the trained weights opened to domestic manufacturers so each can fine-tune the model on its own proprietary production data. FANUC CORPORATION <6954> and YASKAWA Electric Corporation <6506> lead the large-cap beneficiaries; small-cap specialists in machine vision, SLAM, and edge processors such as Kudan Inc. <4425>, Digital Media Professionals Inc. <3652>, and Future Innovation Group, Inc. <4392> trade with rising volatility as the theme spreads.

My top pick is none of these. It is DMG MORI CO., LTD. <6141>, and the case rests on numbers. DMG MORI is a global leader in precision machine tools that was winning on merit long before any ministry drew up an investment framework. First-quarter orders rose 28.8% year on year to ¥155.4 billion (about $959 million), a record quarterly total for consolidated orders. Revenue rose 18.9%, EBITDA rose 25.9%, and the operating margin jumped from 1.5% to 2.5%, on track for the 5% full-year target. Demand from aerospace, defense, and energy customers - the sectors the investment framework feeds - produced double-digit growth in every region. Management has already raised full-year guidance: orders to ¥580 billion (about $3.6 billion), revenue to 565 billion yen (about $3.5 billion), EBIT to 28 billion yen (about $173 million), with 600 billion yen in annual orders now in sight.

The market is underpricing the software layer. DMG MORI funded a 1 billion yen (about $6.2 million) endowed chair at the University of Tokyo for digital-twin and physical-AI research, standardized major unit design life at 60,000 hours (triple the previous generation), and extended key component warranties to five years. Feed the national foundation model with DMG Mori's accumulated machining data, and the result is machines that correct their own errors and schedule their own maintenance. The stock trades at a discount because depreciation is rising and free cash flow ran 6 billion yen (about $37 million) negative on inventory build. That is what the next phase costs, and it is why the entry point exists now. BUY.

Healthcare turns from cost center to growth industry

Every Japanese government of my professional lifetime has treated social security as a bill to be trimmed. This HONEBUTO draft treats preventive healthcare as an industry to be built. It commits, for the first time in writing, to halting and then lowering the social-insurance premium rates paid by the working generation. It elevates "offensive preventive medicine," expands the disease-management list to cardiovascular disease, COPD, chronic pain, hearing loss, and sleep disorders, and gives women's health unprecedented prominence: strengthened care for menopausal women, an upgraded national women's health center, and a five-year preconception-care program with a published implementation roadmap.

Two companies convert this policy directly into earnings. Both were compounding before the policy existed; the HONEBUTO simply widened the runway.

JMDC Inc. <4483> owns the data layer. It aggregates anonymized claims and checkup data from health insurance associations and sells the analytics to pharmaceutical companies and insurers. When the state orders premium rates down, every health insurer in Japan will come under pressure to prove its prevention programs work, and proof requires JMDC's data. For the full year ended March 2026, revenue rose 8.74 billion yen (about $54 million) year on year, with operating profit up 1.8 billion yen (about $11 million). Net profit dipped on platform investment, but the core engine is intact. The company raised its year-end dividend from 16 yen to 18 yen per share, a total payout of 1.18 billion yen (about $7.3 million). A growth company that behaves like a shareholder-return company limits your downside while the policy tailwind builds.

Fuji Pharma Co.,Ltd. <4554> has specialized in women's health since its founding in 1965. Its biosimilar business is now the accelerant: interim biosimilar sales roughly doubled year on year, driven by "ustekinumab" and by "aflibercept," which was added to the national reimbursement price list in November 2025, with "golimumab" and "denosumab" following behind. What matters strategically is that Fuji Pharma's recent biosimilars have reached the market first - or as the sole supplier - in their categories, the position that historically holds share. The company's Thai subsidiary OLIC (Thailand) runs a global CDMO business with spare capacity, so incremental contracts drop toward the bottom line without fresh capex. And the shareholder signal is unambiguous: management lifted the full-year dividend forecast from ¥47 to ¥49 per share in March 2026 - the second consecutive increase - under a stated progressive-dividend policy.

One caveat the tape makes plain, and which I will not paper over: reported net profit is set to fall, not rise. A ¥2.46 billion valuation loss on the company's stake in biosimilar partner Alvotech forced a cut in full-year net-income guidance to ¥2.24 billion, down roughly 41%, with interim net profit off 44.6%. This is a one-off, non-operating hit - the operating line grew sharply, with first-half operating profit up about 91% - rather than evidence that the core business is deteriorating. But it is the kind of item that shows up in the headline number, and you should size the position knowing the final line is temporarily depressed. A company sitting at the intersection of women's-health policy and biosimilar-driven cost containment, growing at the operating level and raising its dividend while you wait - provided you read past the one-time loss to the engine underneath.

Infrastructure as national defense

The HONEBUTO draft's language on public works marks a break with decades of apologetic austerity: "execute the Reiwa-era national resilience program." A Disaster Management Agency will be established as a permanent command tower. Maintenance shifts from reactive repair to preventive upkeep, converting lumpy construction demand into recurring inspection and remediation revenue. And in a sentence every construction-sector analyst should tape to the monitor, the government commits to reflecting labor and materials costs in budgets and to "securing the necessary volume of projects." That amounts to a state guarantee of margin normalization for an industry that spent thirty years bidding itself into the ground.

The general contractors - KAJIMA CORPORATION <1812>, Nishimatsu Construction Co., Ltd. <1820>, TEKKEN CORPORATION <1815> - will take their share. But the superior risk-reward sits upstream, in the firm that plans and designs what the contractors then build: CTI Engineering Co.,Ltd. <9621>, Japan's leading civil-engineering consultancy. It has grown revenue for 13 consecutive fiscal years entirely on the strength of its own franchise. It collects the consulting fee before materials-cost risk enters the equation. "Domestic consulting orders rose 10.2% to ¥72.4 billion (about $406 million) in fiscal 2025, and domestic revenue rose 4.2% to ¥69.7 billion. Overseas revenue reached ¥31.3 billion, roughly 30% of the total, through the company's international arm and London-listed Waterman Group, with offshore-wind seabed surveys and Indian and Indonesian partnerships extending the reach. Guidance for fiscal 2026 calls for 4% revenue growth and 15% operating-profit growth, both record highs. For a company whose order book is effectively underwritten by a 2027–2040 national plan, that multiple is a mispricing.

Note that the fiscal-2025 growth was in revenue and orders, not profit: segment operating profit was flat domestically and down 29.7% overseas on cost and wage inflation, and group net income declined. The rebound is a fiscal-2026 guidance story, not yet a fiscal-2025 result."

Where I refuse to follow the money

Now the part the policy's cheerleaders will not write.

I called Nikkei ¥50,000 from ¥20,000 when the call was heresy, so I do not lack conviction about Japanese equities. But I built that call on corporate earnings power and governance reform, on companies proving themselves in the market rather than ministries picking winners. What troubles me about this HONEBUTO draft is the arithmetic, not the direction. A budget framework with no request ceiling invites every ministry in Kasumigaseki to relabel its wish list as strategic investment. The leash on the Bank of Japan converts a market-driven yen adjustment into something closer to fiscal dominance, and a currency sliding from ¥162 toward ¥170 stops being an export subsidy and becomes a verdict on the currency itself. And when the state selects Noetra as the national AI champion and wires it ¥1 trillion, it is picking winners. That is the founding act of crony capitalism, however patriotic the branding.

Over the medium and long term, Japan needs expenditure cuts and tax cuts, not a wider subsidy scheme. Growth financed with borrowed money is rented, never owned. So back to my opening rule: buy where the state is amplifying existing Japanese strength, and refuse to buy where the state is subsidizing entrenched Japanese weakness. DMG MORI's machine tools, JMDC's data monopoly, Fuji Pharma's first-mover biosimilars, CTI's design franchise - these are world-class private assets that were already winning and are now receiving a policy accelerator. That kind of positioning compound. Sectors where Japan lost the global race years ago, and where the investment framework now proposes to pour public money against the market's verdict - generic large-language-model development chasing American incumbents, perpetually protected segments of agriculture, declining industries kept upright by procurement - will absorb billions and return decimals. Tax money does not change the odds in a race Japan has already lost. Subsidy dependence shows up in the share price the day the subsidy is questioned, and with a debt-to-GDP ratio above 250%, that day comes.

The trade in front of you runs on a two-to-four-year horizon: a high-pressure economy, a weak yen, an unprecedented budget mechanism, and four companies positioned where the money lands and the strength is already real. Take it. Collect the dividends and ride the re-rating. But size the position knowing that the same document funding your winners is also writing checks the next generation of Japanese taxpayers must cover, and keep your capital out of the sectors this policy is trying to rescue rather than reward. I was right about 50,000 when the consensus laughed, and the index has since tripled that number. On fiscal reckoning, I would prefer to be wrong. I am not.

All figures cited here are drawn from company disclosures and public policy documents available as of early July 2026; this article is for informational purposes only, is not investment advice, and readers should verify the numbers against the primary earnings materials and consider their own circumstances before making any investment decision."