During the 1980s, Japan held a prominent position in the semiconductor sector. However, significant transformations in the chip supply chain resulted in a loss of its leading status.

Nations like Taiwan, home to TSMC, the world’s most extensive and cutting-edge semiconductor producer, and the U.S., which excels in design aspects, started to dominate chip production. Simultaneously, the Netherlands harbors ASML, a crucial company manufacturing tools necessary for cutting-edge chip production.

Japan has now embarked on a mission to breathe new life into its semiconductor sector. Tokyo has allocated substantial subsidies for the industry’s rejuvenation. At the forefront of this revitalization drive stands Rapidus Corporation, established in 2022 by the Japanese government and eight local companies to foster the development and production of advanced semiconductors.

Rapidus Corporation sets its sights on manufacturing 2 nanometer chips by 2027, aiming to catch up with industry giants like TSMC and Samsung.

In a recent episode of Beyond the Valley, Tom Chitty, and Fei Xue from the Economist Intelligence Unit (EIU) discussed Japan’s endeavors to rekindle its domestic semiconductor sphere.

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Below is an edited transcript from the August 6, 2024, “Beyond the Valley” episode:

Tom Chitty: In the 1980s, Japan owned over half of the global semiconductor market. However, subsequent developments saw other nations seize the lead in securing their chip supply chains. Now, supported by governmental and corporate backing, Japan aspires to revitalize its semiconductor industry and is on a quest to craft the world’s most sophisticated microchip. Joining us today is Fei Xue, a senior analyst at the Economist Intelligence Unit.

Fei Xue: Semiconductors are omnipresent commodities utilized in various electronic devices and beyond, embodying processors and memory chips. While logic chips entail processors, memory chips store data. These segments represent significant portions of the semiconductor market, each with dominant players.

Arjun Kharpal: The statistic of the week: 97 billion U.S. dollars.

Tom Chitty: How has Japan’s semiconductor industry evolved?

Fei Xue: Japan once led in global semiconductor R&D, with Japanese firms commanding a majority share until the 1980s. Subsequently, a decline ensued, with Japan’s current market share under 10%, focusing on specialty and legacy semiconductors.

Arjun Kharpal: What led to Japan losing its edge?

Fei Xue: Political factors, including U.S. semiconductor tariffs and agreements, paved the way for the ascent of competitors from South Korea and Taiwan in the 1990s. Specialization in chip design and manufacturing prompted Japan to lag, despite massive investments and dwindling government backing.

Tom Chitty: Discussing Japan’s efforts to revive its industry.

Fei Xue: Japan’s strategy integrates private sector collaboration and international investments to advance chip design and fabrication. Initiatives like attracting TSMC to set up fabs in Japan and forming the Rapidus consortium exemplify these revitalization efforts.

Arjun Kharpal: The impetus for continual miniaturization in chip technology?

Fei Xue: Shrinking chip sizes enhance semiconductor utility and processor performance.

Arjun Kharpal: Challenges for Japan despite advancements?

Fei Xue: Although aiming for two-nanometer chips by 2027, Japan will trail behind leaders like TSMC and Samsung in chip technology. Nonetheless, a focus on legacy chip demand and impending supply-demand gaps may offer opportunities.

Tom Chitty: Japan’s semiconductor revival, economic growth aside, addresses national security concerns amidst global semiconductor indispensability.

Fei Xue: Semiconductor significance extends beyond economic growth, encompassing critical roles in cutting-edge technologies. As the world seeks autonomy in semiconductor production, Japan’s revival seeks to mitigate reliance on foreign supplies, especially amid geopolitical tensions.

Arjun Kharpal: Navigating geopolitical challenges amid semiconductor geopolitics?

Fei Xue: Japan faces constraints in semiconductor exports due to geopolitical rivalries, impacting market reach. While challenges persist, initiatives like reshoring chip manufacturing and advancing technological sectors amplify semiconductor demand.

Tom Chitty: Addressing AI leadership urgency amidst Japan’s semiconductor reinvigoration.

Fei Xue: Japan targets logic and memory chip development for AI advancement, aligning with capacity-building and partnerships to meet expanding AI demands.

Arjun Kharpal: Japan’s semiconductor expertise in niche segments like precision tools and materials crucial in semiconductor supply chains.

Fei Xue: Japan’s strength lies in specialized materials and tools, with market dominance in critical sector components like photoresists and silicon wafers.

Tom Chitty: Concluding remarks and game show trivia.