Japan has prioritised to revive the semiconductor industry

Japan is under great pressure to find solutions to revive its semiconductor industry, as the ongoing chip shortages and high semiconductor supply chain disruption risks remain major challenges for governments around the world. The world’s semiconductor race is accelerating. Used in every electronic appliance essential to our daily lives, semiconductors are critical to national security. Driven by competition between the United States and China, as well as a global chip supply shortage and supply-chain disruptions, governments around the world are pursuing aggressive funding measures to secure access to semiconductors.

Japan is no exception – strengthening semiconductor supply chains is a key element of its latest economic security bill. The US is in the final phase of passing the CHIPS Act, which will provide $52 billion to subsidise semiconductor manufacturing. Following the US, in February 2022, the European Commission announced the Chips Act package, a 43 billion Euro investment plan to increase its market share of global production from 10 to 20% by 2030. South Korea is also seeking to pass legislation that would provide $450 billion in investment in semiconductor production over ten years.

To develop an effective industry revival strategy, the Japanese government and domestic semiconductor players are now reflecting on why Japan's semiconductor industry has been losing ground to foreign competitors in the global marketplace.

According to Nikkei and Mynavi, the Ministry of Economy, Trade and Industry (METI) of Japan has mentioned potential strategies to revive the country's semiconductor industry in its "Strategy for Semiconductors and the Digital Industry" released in June last year. Japan has made a three-phase strategy to revive the semiconductor industry.

In response to the US-China trade war, governments around the world began pushing for semiconductor localization. Japan's METI has also come up with a three-phase strategy to revive the country's semiconductor industry over the next 10 years. Media reports in Japan suggested that the Japanese government had considered attracting TSMC, Intel, and Samsung Electronics to Japan. However, after Japan imposed tighter controls on exports of semiconductor materials to South Korea in 2019, Samsung is no longer a candidate.

Eventually, TSMC agreed to set up a wafer fab in Kumamoto prefecture, with investments from Sony and Denso. While securing the supply of semiconductors is critically important for national security, indigenous production is not necessarily the only answer. Both multilateral and unilateral approaches should be used to enhance economic security and to avoid over-investment. And, Japanese policymakers will need to assess the costs and benefits to devise a semiconductor policy that enhances economic security in a sustainable way.