Japan’s Green Transformation plan – an overlooked opportunity?

Japan’s Green Transformation (GX) strategy, a bold plan to achieve net-zero emissions by 2050, is gaining momentum domestically—but remains under the radar for many international investors. Launched to drive the country toward net-zero emissions by 2050, the GX programme aims to unlock over ¥150 tn (approx. $1 tn) in public-private investments over the next decade. One of the main initiatives is the government’s issuance of ¥20 tn of GX economy transition bonds over 10 years.

Yet, despite the scale, many global investors remain unaware of Japan’s decarbonisation push. A survey by investment bank Jefferies of 400+ investors across the U.S. and Europe found that only three institutional investors were familiar with Japan’s plan.

The GX plan spans the full spectrum of climate finance tools—from carbon pricing and emissions trading schemes to transition bonds and other market-based mechanisms. The government has already issued ¥3 tn in transition bonds.

Aberdeen Investments argues that the Green Transformation strategy “could position Japan as a leader in climate technology and provide support for a broad range of securities”. Tracking the proceeds from upcoming bonds could shed light on which sectors will benefit, the asset manager said in a recently published insight.

The GX strategy aims to allocate approx. ¥14 tn across 16 industries. Aberdeen highlights hydrogen, storage battery and automobile, iron and steel, next generation renewables and lifestyle as examples of sectors that could benefit.

GX – a plan urgently needed to energise and decarbonise Japan’s economy

Japan is the world’s fifth-largest emitter of greenhouse gases and has long relied on fossil fuels—nearly all of which are imported. This dependence adds urgency to its shift toward a net-zero economy by 2050. The Green Transformation (GX) plan now signals that Tokyo is serious about shifting gears.

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“The comprehensiveness of the roadmap combined with extraordinary scale of financing – which is more than 3 times larger than the US Inflation Reduction Act (IRA) as a share of country GDP – demonstrates Japan’s credible commitment to using the net-zero transition to rev up innovation and future economic growth,” said Sanaa Hakim, Portfolio Manager in the Thematic Investing team of Robeco.

According to Hakim, Japan’s GX plan is expected to create strong tailwinds for companies across sectors like renewables, electric vehicles, and energy-efficient infrastructure – as seen in the US with the IRA.

However, given the strong dependence on coal, Japan’s energy transition comes with challenges, “but it’s being tackled with an equally unique strategy,” opines Aniket Shah, Global Head of the Sustainability and Transition Strategy team at Jefferies Group.

“The scale and structure of the GX Plan—its incentives, R&D focus, and diverse climate finance tools—set Japan up for one of the most ambitious energy transitions in the developed world,” Shah added. Thus, investors should keep a close watch.