Japan Rolls The Dice On A State-Led Chip Revival

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 ($6.4 billion).

JSR holds
a roughly 30 % 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 emphasizes 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-nanometer 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 center for next-generation semiconductors, in collaboration with IBM and IMEC. Rapidus received 330 billion yen ($2.3 billion) in financial support from the Japanese government over 2022 and 2023. It aims to start producing 2-nanometer semiconductors in 2027.

But because Rapidus has not built and operated a fabrication facility to date, it will likely take time to realize 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 standardization of their technology and the leveling up of technology among their companies.

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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 government is driving Japan's semiconductor revival. Image: Twitter

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 centers 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.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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