Executive Summary
A significant component of the United States–Japan trade deal announced in July 2025 is a $550 billion loan fund, which could be an important basis for the two countries’ future economic security, industrial revitalization, and technological leadership.
To advance the initiative, Hudson Institute convened a conference to clarify how the fund will operate, identify strategic chokepoints it can address, and surface industry priorities that US and Japanese policymakers should consider as they refine implementation.
The conference brought together Japanese and US industry leaders from critical minerals, supply chains, data centers, and power management sectors, who identified bottlenecks in the industrial framework that the fund is meant to address. Participants also underscored the communications, workforce, and regulatory challenges that threaten to interfere with achieving the fund’s goals. Government officials in both countries should integrate these insights into policymaking as they seek to operationalize the fund.
The Original Agreement: Organizational and Financial Details and Lingering Questions
Prior to the deal, Japan’s chief trade negotiator, Ryosei Akazawa, then minister of state for economic and fiscal policy and charged with negotiating the trade deal, sought concessions on US tariffs through bilateral economic security cooperation. In negotiations with US Commerce Secretary Howard Lutnick, Japan’s proposal evolved into a mutual agreement on a $550 billion fund to “rebuild and expand core American industries.”
While details about the fund’s administration and financing remained limited in July, greater clarity emerged in September when the two governments signed a memorandum of understanding (MOU). Later that month, the Japan Bank for International Cooperation (JBIC) published additional guidance outlining how projects under the fund would be financed.
Below are some key details about the MOU:
- The fund must be used by January 19, 2029, the end of President Donald Trump’s term. It will focus on key strategic sectors—semiconductors, pharmaceuticals, critical minerals, metals, shipbuilding, energy (including pipelines), artificial intelligence, and quantum computing—in both the United States and Japan.
- Washington and Tokyo will establish two committees: an investment committee headed by the US commerce secretary, who will recommend and oversee investments, and a consultation committee of US and Japanese officials who will advise the investment committee and provide project inputs.
- The US will forward projects that receive the president’s approval to Japan for review. Tokyo will have 45 business days to respond and transfer the necessary funds, in US dollars, to the Investment Accelerator in the Commerce Department. Japan has the option to decline the proposed project, but it will then be subject to retaliatory US tariffs.
- If Japan approves the proposed project, JBIC will oversee the funding process, using one of three sources: (1) dollar-denominated JBIC bonds, (2) Japanese government loans to JBIC in yen, or (3) a transfer of Japan’s foreign currency reserves. In addition, private financial institutions will provide loans, most likely in the form of loan guarantees backed by Nippon Export and Investment Insurance (NEXI).
- JBIC will be responsible for protecting Japan’s interests. The MOU stipulates that any project agreed to must comply with the domestic regulations and laws of both countries. According to the JBIC Act, the bank can work only on projects that are profitable and/or beneficial to Japanese firms or Japan through economic activity or offtake. Projects proposed under the fund must therefore meet these requirements.
- Finally, Japan and the United States will split the profits and dividends from the project on a 50-50 basis until Japan recoups its original investment plus interest. Afterward, Japan will continue to receive 10 percent of the profits. Japanese firms will also receive preference to serve as vendors and suppliers. The United States will support these projects by arranging “leases for United States federal land, access, water, power, and/or energy.”
The Trump-Takaichi Meeting in October
President Trump’s first meeting with Prime Minister Sanae Takaichi, held in October 2025 in Tokyo, offered an opportunity to unveil new developments for the fund. At that meeting, the Ministry of Economy, Trade, and Industry (METI) released a list of potential projects spanning several sectors. These included energy (power generation, distribution, and management), data center infrastructure, and critical minerals, with project costs estimated at $400 billion.
Upon closer inspection, however, it became clear that the project plans were very preliminary. Though they addressed areas considered priorities by the Trump administration, many had vague descriptions. For instance, electrical equipment manufacturer Fujikura appeared on the list as supplying fiber-optic cables, yet there was no deeper description of the project or its estimated cost. According to Japanese industry officials, other projects on the list appear to have emerged out of initial, exploratory conversations with the Commerce Department—not detailed commitments.
It is thus safe to say that discussions on potential projects are ongoing, though officials will likely announce the first round of projects in the coming weeks ahead of the prime minister’s expected visit to Washington in March. All the relevant actors on this issue—public and private sector officials in the US and Japan—are investigating and deliberating about potential projects. In this situation, Hudson was eager to support US-Japan relations by holding an event that facilitated an informative discussion of how the fund should be used to address strategic sectors and inefficiencies in the American industrial framework.
Key Findings from the Conference
For this event, Hudson focused on industry and banking participants from a few select sectors—critical minerals, manufacturing supply chains, data center financing, and power management—as they are priorities under the MOU and will likely see projects in the coming months. The participants described two key areas where the fund should be used to capitalize on opportunities and resolve industry bottlenecks.
Data Centers and Infrastructure
The Trump administration has demonstrated that it is prioritizing AI as a key component of American technological leadership and hascreated policies on data center development and focused resources on it. Japanese firms are crucial to the wider data center ecosystem, from providing semiconductor manufacturing equipment and heat management components, to power generation and electrical grid management. As Secretary Lutnick pointed out in Tokyo in October, this compatibility means that the fund will make data centers and related power infrastructure priorities for funding. The Hudson conference thus provided an opportunity for industry representatives in data center financing and power management to provide insights into potential investments.
The sheer size and cost of recent data center projects signify the need for large funds like the $550 billion loan. Ms. Quyn Tran from Sumitomo Mitsui Banking Corporation, the data center financing expert at the conference, noted that in 2017 a typical data center project cost $220 million and required 20 megawatts of power. Now, the cost and power requirements are rapidly increasing, with estimates of up to $20 billion and 1 gigawatt. As these costs and power demands continue to rise, the heightened financial risk creates incentives to use the $550 billion fund.
In addition, Ms. Tran and Mr. Eric Wilkinson of Mitsubishi Electric Power stated that power is the greatest bottleneck for the data center industry. Energy is not only crucial for data center operations; it is necessary for manufacturing components the industry needs, such as circuit breakers; gas turbines; and heating, ventilation, and air-conditioning systems. According to private conversations this author held with US and Japanese government officials, nuclear power and gas power will be high priorities for the fund and will likely be announced in the first round of projects. METI’s list of potential projects features many energy and power infrastructure initiatives, which demonstrates an understanding of the need for more energy as soon as possible.
Furthermore, because of the wide-ranging infrastructure and equipment needed to build and sustain data centers, the fund should not only invest in more power and related infrastructure, but also in more plants that produce the equipment and components needed to build such infrastructure. Items such as grid circuit breakers are currently on a four-year backlog. Industry is attempting to address these needs with more capacity, but that will take time and greater financial support. Meanwhile, reports are emerging that the first batch of $550 billion fund projects may include one for synthetic diamonds, which are vital to semiconductor and high-precision manufacturing, demonstrating the need for an expansive approach toward building the US data center infrastructure.
Supply Chains
The restrictions China imposed on rare earth minerals and legacy semiconductors in October 2025 were a reminder of the need to secure supply chains lest they become targets of economic coercion. Ms. Reese Goldsmith and Ms. Jennifer Thomas from the critical minerals and automotive manufacturing industries, respectively, provided several recommendations on how best to use the fund.
First, original equipment manufacturers (OEMs) that assemble final products should proactively enter into offtake contracts with upstream critical mineral miners and processors as well as rare earth magnet producers. Such contracts would guarantee that primary producers’ goods will have buyers, enabling them to proceed with plans to be active in the low-volume, high-variable critical mineral sectors. Price guarantees, such as the $110 per kilogram for rare earths that MP Materials will receive under its deal with the Department of War, are important.
Yet just as important for success are OEM offtake agreements, such as Apple’s $500 million commitment to buying magnets from MP Materials. All the potential critical mineral projects on METI’s October 2025 list mention offtake agreements; the US and Japanese governments should use their financial power to ensure that OEM purchasing commitments are integral elements of any projects that receive approval.
Second, while investments in critical mineral mines and rare earth magnet plants are necessary, processing is a key step and is the source of China’s competitive advantage—and its stranglehold over the market, as it controls 90 percent of all processing of rare earths. China’s economic advantage derives primarily from its low environmental standards. For example, it uses acid directly in rare earths processing, which is much less expensive but creates considerable environmental problems. Because critical minerals are a key strategic sector for the fund, mineral processing and recycling should be investment priorities to chip away at China’s dominance in these sectors.
Third, critical minerals and manufacturing require both ready availability and a great deal of energy. Conference participants recommended a focus on investment in advanced energy storage to ensure grid stability and reliability as the administration encourages wider adoption of nuclear energy. This is because ensuring sufficient storage is essential for addressing issues with intermittent supply and demand, especially as nuclear baseload capacity matures. The need for consistent energy storage creates another potential dependency in an industrial sector dominated by China, providing a further impetus to invest in non-China mineral sources.
Fourth, Ms. Thomas of Honda emphasized the need to build capacity across the entire supply chain, including legacy semiconductors. Though much of the discussion on industrial policy and investments has been focused on cutting-edge technology such as semiconductors and quantum, China’s recent export restrictions on legacy semiconductors from Nexperia threatened to shut down large segments of the global automotive industry. This should remind officials overseeing the fund that they need to support sophisticated technologies as well as legacy technologies that are crucial to our everyday lives.
Challenges and Next Steps
Communication
One of the biggest challenges surrounding the $550 billion fund is the difficulty in communicating its objectives, administrative operation, and funding mechanism. In the months since the September MOU, many Japanese industry representatives have expressed an interest in using the fund to advance their priorities, but the continuing lack of clarity on the administrative and financial procedures has compelled most of them to remain curious but wary.
Japanese government institutions such as JBIC, METI, and the Ministry of Foreign Affairs have attempted to address this concern through private roundtables with industry. Yet this appears to have had limited effect, in part because many details about the fund’s projects—such as selection criteria, funding allocations, and administrative oversight—remain under negotiation at the government-to-government level. This is understandable, though both governments should be aware that the continuing lack of clarity on how the fund will function, more than six months after its announcement, is detrimental to its aims.
Much of the media coverage of the fund has not focused on its serving as a mechanism to support strategically important industries and avoid economic coercion. Organizations such as Hudson Institute have analyzed the fund and its objectives and internal workings closely, but more efforts are needed to inform the private sector and voting public.
An issue related to publicizing the fund’s purpose is its official name, or lack thereof. In both the US and Japan, it has been described as “the $550 billion investment fund,” which is a misnomer and is counterproductive, since it limits Japanese public support. First, it is a loan fund or debt obligation vehicle through which the Japanese government supports part or all of a project, recovering its initial outlay through a set rate, then continues to receive a percentage of the profits and dividends even after the initial loan has been paid off in full.
In addition, the term investment fund has elicited disdain from portions of the Japanese public, who regard the $550 billion as a transfer payment from Tokyo to Washington that Japan will never see again, rather than a loan mechanism to advance both countries’ economic security and industrial and technological priorities. JBIC has a role to play here in reassuring the Japanese public that oversight of the fund and bylaws ensures that any approved project must and will benefit Japan and its interests.
From the American side, investment fund has obvious appeal to the White House, as it amplifies the administration’s efforts to rebalance foreign obligations and reinvest in American industrial revitalization. However, using more accurate terms, like loan fund or even industrial leadership fund, should achieve the same effect without causing the Japanese public unnecessary concern.
Workforce Needs
Arguably, the largest challenge is addressing workforce needs. In private conversations, Japanese industry and business representatives consistently mention that concerns about the availability of skilled workers are the biggest hindrance to undertaking projects in the United States.
This is not new: JBIC’s 2024 survey showed that the biggest concern for Japanese firms was the high cost (and likely shortage) of labor. A 2024 study by the Semiconductor Industry Association warned that current training rates were insufficient to meet the Biden administration’s semiconductor ambitions, and that by 2030, the industry would experience shortages of 67,000 workers.
These workforce trends will experience greater strain as the current administration attracts large industrial investment commitments. Yet all the participants in the Hudson conference believed that workforce shortages would be the key bottleneck for the fund’s projects. Ms. Tran pointed out that several years ago, data center developers used to brag about their relationship with various hyperscalers. Now, however, in their public statements they highlight their strong relationships with local construction firms, equipment providers, and the labor community. This development reflects the fact that materials and labor have become the most significant determinants of success.
The Trump administration is aware of this problem, and in August 2025, the Departments of Labor, Commerce, and Education published a report addressing how the United States will develop the workforce needed to match its industrial and technological ambitions. Yet given the scale of the various strategic industrial initiatives the administration has announced—shipbuilding, semiconductors, data centers, energy, critical minerals, and more—it will find that it needs to develop a comprehensive workforce education plan to ensure that more Americans have the skills necessary to contribute to these efforts.
In addition, the White House should remember that while Japanese firms cite the need for a wider and deeper talent pool, they are also part of the solution. Japanese companies have invested in the United States for more than 50 years and have a long, successful track record in training American workers to produce high-quality products. Japanese automakers in the US have been very successful on this issue, thanks to their use of a multipronged approach that engages with local communities, high schools, community colleges, and universities. As the US government finds ways to grow its workforce to meet the fund’s needs, it should work with Japanese firms as well.
Regulatory Processes and Permitting
The divergence between federal and state regulations presents another challenge, as this might slow down the pace at which the fund’s projects move ahead. The September MOU for the fund states that the US government plans “where feasible, to arrange leases for United States federal land, access, water, power and/or energy to projects underlying Investments.” It will also “expedite any applicable regulatory processes in connection with any of the projects underlying Investments.” However, how these federal actions will address state-level regulatory and permitting processes is unclear. Some Japanese firms have noted that despite their extensive plans to invest in the United States, the divergence between federal and state regulatory and permitting processes has created significant delays. These private sector actors worry that similar roadblocks will hold up implementation of projects from the fund.
The Trump administration and the federal government have started to revise and rationalize existing regulatory and permitting frameworks to support economic growth. For instance, in the past, states have implemented Section 401 of the Clean Water Act, which empowers them not only to certify that project discharges comply with federal and state water quality standards, but also to issue additional conditions and limitations on proposed projects as a whole. In January 2026, the Environmental Protection Agency proposed a rule to “return Clean Water Act (CWA) Section 401 to its proper statutory purpose, protecting water quality while eliminating regulatory overreach that has imposed unnecessary burden on critical infrastructure projects.” Other recent developments in the same vein include (1) the July 2025 executive order for accelerating federal permitting of data center infrastructure, which will cover a significant portion of likely fund projects, and (2) the May 2025 Supreme Court ruling in Seven County Infrastructure Coalition v. Eagle County Colorado, which recalibrates the National Environmental Policy Act to be more in line with its original statutory scope. Continued efforts to advance reasonable yet effective regulatory and permitting processes are vital for reassuring private industry that critical infrastructure projects are feasible under the $550 billion fund or other initiatives.
Clarification and More Projects
Washington and Tokyo should finalize the parameters determining how they will select, finance, and administer the projects under the fund. Announcing these details publicly would provide a greater impetus for Japanese and US firms to propose projects and would build wider public support for the initiative.
However, the types of projects that would qualify under the fund are quite narrow: they would effectively be “strategic but not bankable.” These are projects that are vital to economic security, supply chains, and technological leadership, but would be financially risky without US government support on land, power, water, and permitting procedures.
Such projects make sense in terms of economic security, but their inherently uncertain profitability means they also run up against Japan’s more traditional approach to foreign investments in the United States. Japan is America’s largest foreign investor, with $890 billion in the past 50 years. However, Japanese corporate actors, because of their experience and success in the US and their generally fiscally conservative outlook, gravitate toward established financial mechanisms. For example, several recently announced projects are not expected to be included in the fund, including Mitsubishi’s $7.53 billion purchase of shale gas assets in the Gulf of America, the $26 billion Nippon Steel–U.S. Steel investment, and Fujifilm’s $3.2 billion cell culture biomanufacturing site in North Carolina. The innovative but still unproven $550 billion funding mechanism, which has numerous details not yet ironed out, is a risk in the eyes of some Japanese boardrooms.
The US and Japanese governments should therefore work with private sector actors to reassure them that the fund is an effective mechanism for supporting important industrial projects. Engaging with financial firms can play a key role, since they will lend to industry and will execute the Japanese government’s loan guarantees under the fund. In private discussions, officials from these banks observed that, even if a project relies only partially on the fund, the loan guarantees from Tokyo and the political and resource support from Washington reduce the overall risk. This translates into lower financial risk and better terms for industry, which makes the projects more compelling. The US and Japanese governments, in encouraging proposals from industry for the $550 billion project, should engage with the financial sector and rely on it as well.
Once the US and Japanese governments provide more information about the fund’s administrative processes and financial structure, the Commerce Department and JBIC should encourage a wider set of projects that capture the real industrial and economic security needs of both nations. The October list from METI failed to include any projects in pharmaceuticals, shipbuilding, quantum, or rare earths. As recent examples of Chinese coercion have shown, a single supply chain disruption can have significant spillover effects in numerous industrial sectors, and China is willing to leverage numerous tools of economic coercion simultaneously. Washington and Tokyo thus need to view their economic vulnerabilities holistically, identifying bottlenecks and inefficiencies across numerous industries, and then make the necessary investments.
Conclusion
The $550 billion fund will be one of the defining facets of the US-Japan relationship for the next three years. Despite the continuing uncertainties over project administration, finance, and public communication over the fund’s purpose, this strategic industrial initiative offers a compelling opportunity to support industrial revitalization, economic security, and technological leadership for both the United States and Japan. China’s coercive economic efforts on rare earths, legacy semiconductors, and now dual-use materials provide a persistent reminder of why such strategic cooperation between the two allies is necessary.
In this context, conversations with industry experts, such as those that took place at Hudson in early November, are crucial for identifying the industrial bottlenecks, inefficiencies, and needs that constrain economic growth. As industry is on the front lines of these economic challenges, industry actors are best placed to suggest priorities for key sectors such as data centers, energy, and critical minerals. They also recognize the challenges to these bold industrial plans, such as the lack of offtake agreements for rare earths, the need to organize ever-growing amounts of investment capital, or problems with workforce availability.
As officials in Washington and Tokyo begin to finalize the first tranche of projects for funding, they need to continue to engage in dialogue with industry, finance, and policy organizations to ensure that implementation of this ambitious fund is a success and an affirmation of the two countries’ shared economic goals.