by Azhar UD DIN
For three decades, Japan’s semiconductor story was told in the past tense. Its firms dominated global chipmaking in the 1970s and 1980s, then lost ground through the 1990s and 2000s, as CSIS’s account of that arc recounts. Today Tokyo is spending on a scale unseen in recent peacetime industrial policy to reverse the decline. The motive is less nostalgia than insurance: if a crisis erupts near the Taiwan Strait, Japan’s carmakers, electronics firms and defence suppliers should not go dark. The strategy is sound in principle. Whether it works depends on execution, and Tokyo should be judged on resilience delivered, not yen spent.
From Vulnerability to Doctrine
Japan never lost its strengths in upstream materials and manufacturing equipment, but it lacked leading-edge logic production at home. Pandemic-era shortages and intensifying US–China rivalry exposed how far its factories relied on chips made elsewhere, and the 2022 Economic Security Promotion Act turned that anxiety into policy. A July 2026 RIETI study by Shiro Armstrong and Shujiro Urata argues that today’s industrial policy borrows from the postwar developmental state yet pursues different goals: strategic autonomy and strategic indispensability, shaped by supply-chain vulnerability and great-power rivalry rather than catch-up growth. Economist Hideyuki Miura likewise finds that growing concern over economic security is a central driver of the revival.
This dual logic is worth keeping in view. Autonomy means being able to make what Japan needs. Indispensability means making what others cannot do without, so that partners have reasons to keep supply flowing in a crisis. Tokyo is pursuing both at once.
Two Bets: Borrowed Capacity and Sovereign Capacity
The first bet is borrowed capacity. Japan Advanced Semiconductor Manufacturing (JASM) in Kumamoto is majority-owned by TSMC, with Sony, Denso and Toyota holding minority stakes, and TSMC said total investment would exceed US$20 billion across two fabs with strong government support. The first fab began mass production in December 2024. The second, planned for 6nm and 7nm-class processes, is targeted for the end of 2027, although reports have noted delays to equipment installation and construction schedules. RIETI researchers describe JASM as a market-aligned, foreign-partner-led model of industrial policy: it secures supply for automotive and industrial users while embedding Japan in TSMC’s ecosystem.
The second bet is sovereign capacity, and it is riskier. Rapidus aims to mass-produce 2nm chips domestically. According to an Argus report on the ministry’s announcement, the government added ¥150 billion in equity through the Information-technology Promotion Agency, bringing its equity investment to ¥250 billion. It also plans subsidies of ¥631.5 billion in fiscal 2026–27 and roughly ¥300 billion in fiscal 2027–28. Mass production is targeted for fiscal 2027–28, and the company is expected to raise about ¥1 trillion in private equity and more than ¥2 trillion in private financing. The state is therefore underwriting a venture that still must win private confidence and, ultimately, customers.
What the Evidence Says
The early evidence on subsidies is encouraging but narrow. A 2026 study in the Journal of Innovation and Development reports that Japan’s support, roughly ¥4 trillion as of 2023, has had a net crowding-in effect on private research and development, especially in cutting-edge technologies and among small and medium-sized enterprises that face financing constraints. That matters, because the standard objection to subsidies is that they merely replace private money. The same study cautions that Japan’s alignment with Washington remains sensitive to shifts in global power dynamics.
Still, higher R&D spending is not the same as operational fabs, yields or secure supply. The history is sobering. RIETI’s review of Japan’s chip decline traces the loss of dominance to trade disputes, structural rigidities and missed transitions to new business models, and its companion analysis points to over-coordination, weak start-up formation and low labour mobility as long-run constraints. Money alone does not fix those.
The Risks Tokyo Cannot Wave Away
Four risks stand out. First, concentration: JASM brings capacity onshore, but it deepens dependence on a single foreign firm, so Japan’s resilience partly rests on TSMC’s decisions. Second, execution: the gap between government funding, pilot lines and volume production has swallowed bigger names than Rapidus, and a 2nm schedule leaves little room for slippage. Third, fiscal sustainability: Armstrong and Urata highlight trade-offs between resilience, efficiency, fiscal sustainability and openness, and open-ended subsidies can harden into entitlements. Fourth, talent: fabs need engineers, and competitive ecosystems require reforms in labour mobility, university–industry links and immigration.
There is also a strategic risk. A subsidy race among allies wastes public money and duplicates capacity. Japan’s comparative advantage lies in materials, tools and process know-how, and it should not abandon that niche to chase prestige at the leading edge.
A Verdict, and a Way Forward
Japan’s approach deserves qualified support. Sovereign chipmaking cannot eliminate exposure to a regional flashpoint, since no country can fully decouple from a supply chain this interdependent. It can, however, shorten recovery times, protect critical sectors and give Tokyo bargaining power with allies. That is a realistic definition of success.
To achieve it, Tokyo should do three things. It should tie further funding to published milestones on yields, customer commitments and delivery dates, the performance-linked support RIETI’s researchers recommend. It should deepen allied cooperation in materials and equipment rather than compete for every leading-edge fab, preserving the indispensability that gives Japan leverage. And it should treat talent and openness as core infrastructure, welcoming foreign firms, researchers and workers as readily as it welcomes foreign capital.
Japan has turned a vulnerability into a national project. The next few years will show whether that project builds durable resilience or an expensive monument to it. The test is not how much Tokyo spends, but whether its fabs keep running on the day they are needed most.
