How Japan’s semiconductor industry is leaping into the future

Amid the disruptions caused by the COVID-19 pandemic to the world economy and supply chains, the importance of semiconductors, essential for the manufacturing of cars and electronic products, has become increasingly evident. In Japan, semiconductors are recognized as a crucial resource for economic security, leading to various new initiatives.

While Japan held a 50.3% share in the global semiconductor industry in 1988, this share has steadily declined since the 1990s, dwindling to 10% in 2019. And, with today’s global shortage of semiconductors, there is a growing recognition that "maintaining and strengthening the domestic semiconductor industry is a crucial strategy for Japan’s future and the safety of its citizens," as stated by Ogino Yosuke, Director of the Device Industry and Semiconductor Strategy office at the Ministry of Economy, Trade and Industry.

In 2021, the Ministry of Economy, Trade and Industry formulated a support strategy for the revival of the semiconductor industry, positioning semiconductor and digital industries as national projects. The strategy includes ambitious initiatives, such as the creation of the Post-5G Fund of JPY200 billion (approximately $1.3 billion) for technological innovation in post-5G and the Green Innovation Fund of JPY2 trillion (approximately $13 billion), focused on the development and implementation of semiconductors as the foundation for electrification and digitization in various sectors to achieve carbon neutrality.

The strategy, which was revised this year, encompasses new elements, such as support for the development of semiconductors with reduced power consumption for artificial intelligence and the strengthening of Japan's semiconductor manufacturing infrastructure, including attracting foreign companies. The government aims to increase domestic semiconductor-related sales to over JPY15 trillion (approximately $99.4 billion) by 2030, three times the 2020 level.

In 2022, a group of eight leading Japanese companies, including Toyota Motor Corporation and Sony Group, jointly invested approximately JPY73 billion (approximately $48.3 million) to establish the new company, Rapidus, dedicated to the mass production of next-generation semiconductors for applications such as autonomous driving and AI. With a target set for 2027, Rapidus aims to develop and manufacture advanced 2-nanometer generation semiconductors. The government has been supporting this initiative, providing JPY330 billion (approximately $2.2 billion) in assistance so far, and has now decided to allocate an additional JPY590 billion (approximately $3.9 billion) in support through the supplementary budget for the 2023 financial year.

The Japanese government also plans to allocate roughly JPY2 trillion (approximately $13 billion) to strengthen the domestic production system of semiconductors through a supplementary budget for the 2023 financial year. This marks a significant increase from the JPY1.3 trillion (approximately $8.6 billion) allocated in the previous year. The supplementary budget is expected to be used to support the facility development of Taiwan Semiconductor Manufacturing Company (TSMC), a leading semiconductor foundry, and the production of next-generation semiconductors by Rapidus.

Construction of Rapidus' new factory in Chitose City, Hokkaido, is underway as part of the initiative to launch a semiconductor production line four years from now. The company has formed a consortium with IBM in the United States, which has achieved success in the foundational research of advanced miniaturized circuits, as well as with imec, a Belgian research institute. imec is an institution working in collaborative partnership with ASML, the Netherlands-based leader in the field of Extreme Ultraviolet (EUV) exposure devices essential for cutting-edge semiconductors. In this way, Japan is bringing together the world's technologies to take on challenges that have yet to be realized.

Due to the complexity of the semiconductor supply chain, achieving self-sufficiency within a single country is not feasible. Hence, international collaboration becomes crucial. The Japanese government has strengthened its collaboration with the United States, focusing on enhancing and diversifying manufacturing capabilities, strengthening cooperation in emergency response to semiconductor shortages and reinforcing research and development cooperation. Simultaneously, Japan has signed a Memorandum of Cooperation in the semiconductor field with the EU, the United Kingdom, the Netherlands and India and continues to enhance its ties with these partners.

In the field of materials and manufacturing equipment, which are indispensable for semiconductor production, Japanese companies hold a significant global market share of 56% in materials and 32% in manufacturing equipment.

As part of efforts to enhance these strengths, collaborative research projects beyond company boundaries are underway. Launched in 2021 to accelerate the technological development necessary for the manufacturing of next-generation semiconductors, the JOINT2 initiative involves the participation of 13 companies, including material and equipment manufacturers. The project focuses on the collaborative development and evaluation of next-generation packaging materials used in semiconductor manufacturing post-processes. Through this initiative, companies contribute their respective technologies and collaborate to refine products and manufacturing processes, with the aim of expediting the provision of materials.

In the public and private efforts to revitalize Japan's semiconductor industry, a crucial element is workforce acquisition. Manufacturing industries, including semiconductor production, face challenges in securing on-site talents, such as production engineers. However, with the declining labour force in the younger generation, due to a decreasing birthrate, there are limitations to securing talent through new graduate recruitment. Therefore, the key lies in providing opportunities for reskilling to individuals working in other industries or occupations, encouraging their transition to the semiconductor industry.

To establish high productivity and competitiveness in the semiconductor industry, it is also essential to bring together related companies and workers in the same region. As the relocation of talent poses challenges, it is preferable for these practices to be implemented within each region.

In the practical implementation of labour mobility and reskilling at the regional level, visualizing talent needs, 'talent seeds' and educational resources is essential. Articulating the future profile of required talents, understanding the current state of the workforce and identifying skill gaps are crucial steps. This process aims to formalize the necessary educational programmes to bridge the gap and to serve as a roadmap for reskilling.

It is expected that the innovation generated by the nation's excellent technology and the accelerating collaboration between the public and private sectors, as well as international partnerships, will pave the way for the future of Japan's semiconductor industry and help push the Japanese economy toward a virtuous cycle.