Human capital: The key bottleneck for Japan's growth strategy

This report, a follow-up to Deutsche Bank's August 19 report on Japan's manufacturing sector, examines the investment and human capital challenges facing Japanese manufacturing. The Takaichi administration unveiled a new growth strategy on July 21, setting an ambitious domestic investment target of JPY 370 trillion by FY2040, centered on the manufacturing sector across 17 strategic fields. However, Japan's manufacturing industry faces a severe structural labor shortage that poses a fundamental risk to the effectiveness of these investments. The analysis reveals a wide range of bottlenecks in Japan's labor supply: (1) reliance on and limits of foreign workers, with YoY growth in foreign manufacturing workers slowing from 2024 to 2025 and intensifying competition for highly skilled professionals; (2) slowdown in the labor participation rate of the elderly since the 2020 pandemic, with the participation rate for elderly men around 35%;