Japan’s semiconductor revival

Author: Hideki Tomoshige, CSIS

At the G7 Hiroshima Summit in May 2023, leaders declared in a statement on economic resilience and economic security that they would strengthen supply chains for critical goods, including semiconductors, through global partnerships. 

This commitment reaffirms Japan’s efforts — starting in 2021 — to revitalise its domestic semiconductor industry, reduce its dependence on other countries for critical goods and build a resilient supply chain. 

Two key elements of Japan’s semiconductor strategy for 2023 include strengthening domestic manufacturing capability and fostering research and development (R&D) for next-generation semiconductor technology through international collaboration. This ambitious approach aims to transform Japan’s semiconductor industry and demonstrates the government’s determination to revive its semiconductor ecosystem. 

The Japanese government aims to increase domestic semiconductor manufacturing capacity by providing subsidies to companies engaged in the production of advanced semiconductors. Given that semiconductors are used in everything from cellphones to defence systems, expanding Japan’s domestic capability will be crucial for reducing the risk of dependence on unreliable sources of supply as well as the risk of becoming overly reliant on a few countries. 

In 2021 and 2022 the government set aside more than 1 trillion yen (close to US$7 billion) for semiconductor manufacturing plants. Without this, Japanese and foreign firms would likely choose more attractive locations to manufacture semiconductors. In May 2023, top executives of seven foreign semiconductor companies met with Prime Minister Fumio Kishida to exchange views on expanding investment in Japan. This step is expected to further secure the semiconductor manufacturing base. 

Semiconductors were also designated ‘specified critical materials’ to strengthen the ability of Japanese industry to manufacture legacy semiconductors and produce the required manufacturing equipment and materials. This resulted in a total budget of 368.6 billion yen (US$2.8 billion). These support measures aim to maintain Japan’s presence in the global semiconductor ecosystem and induce additional private sector investment. 

Beyond financial support, the Japan Investment Corporation (JIC)—a government-affiliated fund overseen by the Ministry of Economy, Trade and Industry—has taken a significant step by acquiring the chip-materials producing firm JSR through a takeover bid of approximately 900 billion yen (US$6.4 billion). JSR holds a roughly 30 per cent share of the global market for photoresists that are required to manufacture semiconductors. The acquisition will enable JSR and JIC to restructure Japan’s semiconductor materials industry through large-scale mergers and acquisitions to increase the competitiveness of Japan’s semiconductor materials companies. 

While industrial policy alone will not be enough to reinvigorate Japan’s domestic semiconductor industry, the government can work to ensure its industrial policies contribute to the success of the industry. This work will require close engagement with semiconductor companies and other stakeholders, an examination of the successes and failures of industrial policy efforts and the modification of policies as needed. 

The Japanese government’s semiconductor strategy also emphasises strengthening Japan’s next-generation semiconductor technology base through international collaboration. Other technology-driven nations — including European countries, the United States, South Korea and India — are launching policies to build resilient supply chains for semiconductors. This is an opportune time for Japan to pursue collaboration with other countries. 

In December 2022, Japan established the Leading-edge Semiconductor Technology Center (LSTC), which is supported by public research institutions in Japan and serves as an R&D hub for scientists worldwide. At the LSTC, researchers will explore new technologies for next-generation semiconductors based on the needs of domestic and foreign industries. It is expected that the National Semiconductor Technology Center and the Interuniversity Microelectronics Centre (IMEC) will collaborate with the LSTC on advanced semiconductor technologies. 

Separately, Japan’s National Institute of Advanced Industrial Science and Technology is working with domestic and overseas semiconductor companies on a project to launch a pilot line of 2-nanometre chips. It is also working with the Taiwan Semiconductor Manufacturing Company (TSMC) to develop an advanced 3D semiconductor packaging technology. These collaborative projects showcase the Japanese government’s ambition to catch up to global leaders that are currently 10 years ahead of Japan in chip manufacturing technology. 

The Japanese government has also established Rapidus, a mass-production centre for next-generation semiconductors, in collaboration with IBM and IMEC. Rapidus received 330 billion yen (US$2.3 billion) in financial support from the Japanese government over 2022 and 2023. It aims to start producing 2-nanometre semiconductors in 2027. 

But because Rapidus has not built and operated a fabrication facility to date, it will likely take time to realise its potential. It also remains to be seen whether Rapidus’s business model, which is based on R&D sustained by sales revenue, will work. 

A cautionary tale is that, from the 1970s to the 2000s, multiple joint research projects similar to the LSTC were undertaken by the Japanese government. These government initiatives initially benefited Japan’s semiconductor industry. But in the long term, Japanese semiconductor companies became less diverse due to the standardisation of their technology and the leveling up of technology among their companies. 

This lack of diversity among Japanese semiconductor manufacturers made it difficult for companies to adapt to changes in a competitive environment. To apply the lessons learned from past government initiatives, the LSTC will need to be led by a diverse set of Japanese semiconductor companies, operate flexibly and not be too bound by specific research goals. 

The Japanese government’s new semiconductor policy aims to play a significant role in reviving Japan’s semiconductor ecosystem. To implement the strategy successfully, the government must continue to pursue further investment and long-term policies aimed at building a resilient global supply chain. At the same time, the government will also need to work closely with stakeholders and remain flexible in adjusting its policies. 

In addition to financial support, the Japanese government is taking a multifaceted approach to strengthen the competitiveness of its semiconductor industry. International cooperation, the establishment of R&D centres and human resource development are all on the table. These efforts are expected to help the Japanese semiconductor industry build a stronger position and contribute to economic resilience at home and abroad. 

Hideki Tomoshige is Research Associate for the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), Washington DC. 

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