Japan to Revamp Semiconductor Industry, Develop Enhanced Microchips

Japanese government has commenced plans to reignite the semiconductor industry locally and develop a more advanced microchips.

The semiconductor market is one of the sectors that powers the tech industry. 

Taiwan, the US, and South Korea are the hub for "microchip" production.

However, Japan was never seen in the equation, but it was once a dominant force in the field, holding more than 50% of the market share.

With several unexpected changes, Japan's position in the global chip supply chain performed weaker. 

In response to its diminished role in the semiconductor industry, Japan is now on a mission to revitalise this critical sector, the government said.

The Japanese government has unlocked billions of dollars in subsidies to bolster the semiconductor industry.

Fei Xue from the Economist Intelligence Unit (EIU) told Tom Chitty and Arjun Kharpal in an episode of CNBC's Beyond the Valley that one significant reason was the political landscape, particularly the Reagan administration's tariffs on Japanese semiconductors and the 1986 U.S.-Japan Semiconductor Agreement. 

This agreement imposed price limits on Japanese semiconductors sold in the U.S. and increased the share of foreign semiconductors in the Japanese market, reducing the competitiveness of Japanese chipmakers.

To revive its semiconductor industry, Japan is adopting a comprehensive state-led initiative that combines private sector resources and development capabilities.

The government is collaborating with international partners, including IBM in the U.S., to step into the chip design sector. 

By 2027, the government hopes to commercialise 2-nanometer chips, competitors like TSMC and Samsung may already be producing 1.5-nanometer chips.

Nevertheless, Japan's strategy includes developing advanced chip packaging technology to improve chip performance and exploring markets for legacy chips, which are still in high demand.

The Japanese government's semiconductor revival efforts are not just about economic growth but also national security, as semiconductors are critical to advanced technologies like AI and EVs.