![\"Tables](\"https:\/\/arc-group.com\/wp-content\/uploads\/2024\/12\/japan-semiconductor-chip-types-1080.png\")
Despite the dramatic fall, the country still retains some competitive advantage in semiconductor equipment<\/a> and memory chips such as coaters, silicon wafers, photoresists, and dynamic random-access memory (DRAM). Such an advantage has provided the necessary technological and logistical foundations for the re-emergence of Japan\u2019s semiconductor out of the 30-year doldrum.<\/p>\nThe construction of a Japan-based factory of TSMC in 2024 is the most significant sign of Japan\u2019s comeback. The factory is meant to produce thousands<\/a> of wafers per month as well as advanced logic chips that Japan has not been able to manufacture. This will only be the opening shot of the subsequent rush of investments from other countries such as the United States and South Korea that could mark the beginning of Japan\u2019s long road back to regain its former position in the sector. With the US-China relations in a downward spiral, there will be more pressure on US-friendly countries to divert their semiconductor investment to countries that are more aligned with the United States, a situation in which Japan can benefit.<\/p>\n To accelerate the revival of the country’s semiconductor industry, the Japanese government has formed a network of strategic alliances with external actors to supplement what the country now lacks in terms of technology and talent. This contrasts sharply with the more insular approach taken in the 1980s when the country was fixated on achieving self-sufficiency<\/a> in semiconductors with little success in the end.<\/p>\n As Japan\u2019s most important ally, the United States figures as a natural partner for the country in revitalizing its semiconductor industry. This partnership has become more critical for both parties as the strategic competition with China heats up across the Asia-Pacific and the world, one in which chips will play a vital role.<\/p>\n The partnership starts with the formation of Rapidus<\/a> in 2022, a collection of Japanese firms working closely with IBM Research, one of the world\u2019s premiere chip inventors. The initiative will see Rapidus help IBM Research develop the cutting-edge 2 nanometers (nm) logic chip to be produced in Japan\u2019s Hokkaido Prefecture in the second half of the 2020s. This initiative will help Japan bridge its existing technical and technological gaps in making advanced logic chips below 5nm, something that could only be achieved through cooperation with IBM with its top-of-the-line technologies.<\/p>\n While the partnership with the United States is to catapult Japan\u2019s semiconductor industry into the bleeding edge of the 21st<\/sup> century, the partnership with Taiwan<\/a>, particularly with TSMC, is more focused on helping to provide Japan with a strong foundation to produce more legacy models of 28nm to 12nm logic chips, rather than the advanced 2nm logic chips. These legacy chips can satisfy the country and the world\u2019s immediate demands and not catapult Japan to the technological forefront.<\/p>\n At a time of increasing market pressure from dominant players in the global chip market such as China and the United States, a Japan-South Korea semiconductor partnership is becoming increasingly important in helping both countries become more competitive on the global market. In addition, South Korea-China relations deteriorated due to increasing differences in the North Korean issue as well as the retrenchment of global order into competing camps with South Korea, Japan, and the United States on one side and China with Russia and North Korea on the other. These factors have made it more attractive for South Korea to pivot from China to Japan as the preferred business partner in the sector.<\/p>\n As a part of this new development, South Korea\u2019s premier chip maker Samsung has decided to invest more than USD 200 million to build a semiconductor research and development facility in the city of Yokohama, Kanagawa Prefecture. The investment will both strengthen Japan\u2019s technological capacity and mitigate South Korea\u2019s current risks. Construction started in 2023 and the facility itself will then enter operation in 2025.<\/p>\n Japan’s semiconductor industry also benefits from domestic actors, whose presence is critical to the current turnaround. Both the public and commercial sectors are providing crucial support for the present resurgence, including financial, technical, and market assistance.<\/p>\n The Japanese Government plays a vital role in initiating Japan\u2019s collaboration with many of its external supporters. The government’s diplomatic efforts<\/a> with the United States helped create, in 2022, the US-Japanese Task Force for Next-Generation Semiconductor, a body to coordinate bilateral cooperation in semiconductors that, in turn, has facilitated many US-Japanese cooperative efforts such as the Rapidus-IBM cooperation scheme.<\/p>\n More important are the Japanese Government\u2019s generous subsidies for the industry. At about USD 25.7 billion, or 0.71% of the country\u2019s GDP (stretching from 2021 to 2024), Japan\u2019s Government demonstrates its utmost determination to revive the country\u2019s once-exalted semiconductor industry. Though the absolute amount of investment cannot match that of the United States, Japan outpaces the United States in terms of percentage of GDP (0.21%).<\/p>\n The government’s subsidy will be insufficient to attract new investments in a sector already saturated with similar state funding from other national governments. Hence, the private sector’s support is equally important. TSMC would not have invested in Japan, even with subsidies, if Sony had not cooperated and supported it in easing the challenges of investing in a new country, something that Intel did not provide.<\/p>\n The Rapidus initiative is an example of the significant role the private sector can play in jump-starting Japan\u2019s semiconductor sector. It was made possible due to private-sector actors providing financial support (such as Softbank and Mitsubishi UFJ Bank) or initial market providers (such as Toyota, Sony, and Toshiba) for the novel 2nm logic chips that the consortium will produce.<\/p>\n Overall, the domestic production landscape of Japan as of Q2 of 2024 is characterized by strong sales in semiconductor equipment, Japan\u2019s advantage in the industry for the past 30 years. The country boasts an extremely healthy year-on-year growth rate of 9.4%<\/a> in sales of semiconductor equipment in Q1 2024, with projected growth for the entire 2024 at 8%. At the same time, Japan maintains about 30% of the market share in sales of semiconductor equipment, only behind the United States.<\/p>\n The resurgence of Japan’s semiconductor industry could have an impact on existing global trade patterns. If Japan’s manufacturing capacity expands significantly, it may reduce the global reliance on chip manufacturers in other countries, such as Taiwan and South Korea. This could result in a diversification of the global chip supply chain, making it less susceptible to disruptions caused by geopolitical conflicts in these vulnerable regions, such as the North-South Korean conflict and the Taiwan Strait conflict.<\/p>\n The resurgence of Japan’s semiconductor industry may provide other players with a new major rival, making protectionist trade policies more appealing to them as a means of protecting their current advantage against a resurgent Japan. This development, in turn, will fragment the global chip market further on top of the increasing division between the US and Chinese camps.<\/p>\n Despite the impressive resurgence of Japan\u2019s semiconductor industry, the country is still facing many headwinds in the future that are both external and internal in nature.<\/p>\n Despite being the United States\u2019 top ally in the Asia-Pacific, Japan is not invulnerable to US policy changes in its chip policies to something more isolationist and nationalist, a distinct possibility at a time when the political class in the United States of both major parties is increasingly likely to resort to more protectionist solutions to both protect existing US industrial advantages as well to secure domestic political wins. The risk is not without foundations given the fact that the US utilized legal actions to keep Japanese chip makers in check in the 1980s through charges of product dumping.<\/p>\n Another key impediment to the recovery of Japan’s semiconductor industry is a lack of skilled personnel. This is seen in Japan’s lower-than-average number of STEM (science, technology, engineering, and mathematics) university graduates, a crucial field of study that offers the skill foundations for a productive semiconductor workforce. In terms of STEM graduate proportion, Japan trails<\/a> many of its counterparts with comparable or even smaller populations, including South Korea, France, Germany, and Mexico.<\/p>\n To further compound this labor skill problem, Japan in 2023 recorded a birth rate of just 1.2<\/a>, the lowest figure in a country already troubled by low fertility since the 1980s. This low birth rate will translate into a precipitous drop in the workforce as the working-age population is set to drop by 20% by 2040 to only around 60 million people. Already, there have been predictions that the country will suffer a labor shortfall of around 11 million<\/a> workers by 2040.<\/p>\n![\"Graph](\"https:\/\/arc-group.com\/wp-content\/uploads\/2024\/12\/japan-semiconductor-manufacturing-equipment-1080.png\")
External Strategic Partnerships<\/h2>\nUnited States<\/h3>\n
Taiwan<\/h3>\n
South Korea<\/h3>\n
Internal Strategic Partnerships<\/h2>\n
The Japanese Government<\/h3>\n
The Japanese private sector<\/h3>\n
Domestic Production Landscape<\/h3>\n
![\"Map](\"https:\/\/arc-group.com\/wp-content\/uploads\/2024\/12\/japan-new-semiconductor-project-1080a.png\")
<\/h2>\nImplications of Japan\u2019s Semiconductor \u201cRenaissance\u201d<\/h2>\n
Existing Challenges<\/h2>\n
US policy changes<\/h3>\n
Skilled labor shortage<\/h3>\n
Technological lag<\/h3>\n