In 1988, Japanese firms controlled 51% of worldwide chip sales, dominating memory production and manufacturing equipment. Fast forward to 2019, and that share had steadily declined to 10%, a stunning reversal that left the country dependent on foreign suppliers for critical technology.
Fusion Worldwide: Japan's $65 Billion Bet: Inside the Government's Semiconductor Revival Plan.Credit: Fusion Worldwide
But 2025 marks a turning point. Armed with unprecedented government investment and strategic partnerships with global tech giants, Japan is mounting an ambitious comeback that could reshape the semiconductor landscape.
The Decline: What Happened to Japan's Chip Dominance?
The 1986 U.S.-Japan Semiconductor Agreement created challenges. Under pressure from Washington, Tokyo agreed to minimum chip prices and doubled foreign market access from 10% to 20%. These concessions immediately eroded Japanese competitiveness, allowing American, South Korean, and Taiwanese companies to capture market share.
Meanwhile, Japan's economy entered the "Lost Decades" after 1990. Corporate investment dried up just as the industry shifted toward a specialized "fabless" model, where design and manufacturing separated. While TSMC pioneered contract manufacturing in Taiwan and Samsung built massive fabs in South Korea, Japanese firms clung to outdated integrated models, trying to do everything in-house.
By the 2000s, legendary Japanese chipmakers like NEC, Hitachi, and Toshiba had consolidated and exited.
The $65 Billion Comeback Strategy
Japan's revival plan centers on massive government intervention. Between 2021 and 2025, Tokyo has allocated approximately $65 billion in semiconductor subsidies, representing a larger share of GDP than America's CHIPS Act.
This funding targets three strategic pillars:
1. Attracting Foreign Fabs: TSMC's Kumamoto facility, which began operations in 2024, received $8 billion in Japanese subsidies. The plant produces 12-28nm chips for automotive and consumer electronics, with a second fab targeting advanced 6-7nm production by 2027.
2. Building Domestic Champions: Rapidus Corporation, backed by Toyota, Sony, and SoftBank, represents Japan's boldest bet. Partnering with IBM, Rapidus aims to mass-produce cutting-edge 2nm chips by 2027 at its Hokkaido facility, a feat only TSMC and Samsung have achieved. The government has committed $12 billion to this project alone.
3. Strengthening Equipment Makers: Tokyo Electron, the world's third-largest semiconductor equipment manufacturer, continues receiving R&D support to maintain Japan's edge in critical manufacturing tools.
The strategy also includes workforce development, infrastructure upgrades in semiconductor hubs like Kyushu and Hokkaido, and participation in the "Chip 4" alliance with the U.S., South Korea, and Taiwan.
Why This Matters Globally
Japan's semiconductor resurgence isn't just about national pride, it addresses critical vulnerabilities in the global supply chain.
The 2020-2023 chip shortage exposed dangerous dependencies. When Taiwan made chips became scarce, Japanese automakers like Toyota lost production of 500,000 vehicles. With 75% of advanced chips manufactured in Taiwan, just 100 miles from mainland China, geopolitical tensions threaten the entire tech ecosystem.
Japan's revival offers geographic diversification. Its partnerships with TSMC, IBM, and American firms like Micron (which received $3.6 billion for Hiroshima expansion) create alternative production nodes outside the Taiwan Strait flashpoint.
Moreover, Japan retains formidable strengths. Companies like Sony control 50% of the global image sensor market, while Japanese firms dominate semiconductor materials—holding 88% of the coater/developer market and 53% of silicon wafers.
The Road Ahead
Japan isn't just catching up, it's positioning for next-generation leadership. Rapidus's 2nm technology, if successful, will power AI computing and autonomous vehicles. TSMC's expanding Kumamoto operations are already attracting 44 supplier companies, creating a self-reinforcing ecosystem.
The critical test comes in 2027, when Rapidus targets mass production. Success would prove Japan can compete at the cutting edge. Failure would raise questions about whether even $65 billion can overcome decades of decline.
One thing is certain, Japan is back in the semiconductor race, and this time, it's playing for keeps.
(Article Sponsored by Olivia Seohyun Ju, Vice President of Sales, Korea/Japan, Fusion Worldwide)