What Will It Take For Japan to Dominate Chip Production Again?

These days the conversation surrounds three major companies: Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung, and SK Hynix—the main providers of early-stage chips. 

However, as the industry evolved over time, many organizations had roles to play in the successful growth of semiconductor innovation and production. Japan was home to six of the top 10 semiconductor manufacturing companies in the world back in 1988—a time when the Asian island controlled half the global market. 

The question: What happened, and can Japan become a leader in the segment once more? There are a variety of factors that could determine Japan’s resurgence as a global chip authority. 

What Happened to Japan’s Semiconductor Lead?

Japan is well-known for its innovation in electronics, robotics, and artificial intelligence (AI). To this day, chip production is still a major component of its economy, amounting to US$48.2 billion in 2022. But, the country currently occupies a much smaller share of the semiconductor market than it did almost half a century ago. 

In the late 1980s, the US imposed trade restrictions on the country (a strategy with uncanny resemblance to its current approach to China) and, as its neighboring countries have ramped up their efforts to supply Western countries with new technologies, a price war with China pushed the country off its top spot. It is also worth noting that while Japan was at the forefront very early in the race, more and more semiconductor innovators have risen to the global stage—perhaps Japan just fell short compared to larger nations. 

Such high contenders in the chip market brought new possibilities to Japan’s talent pool, which could be the primary focus for the country as it looks to reclaim more of the semiconductor market. As the country rebuilds itself as a semiconductor authority it is likely to welcome leading parts producers to bolster its skills acquisition—and, in many ways, build Japan’s pool of chip-making talent.

"Silicon Island": Japan Invests Heavily in Semiconductor Fab

To gain traction against some of the leading nations in the world, Japan will adopt similar strategies to encourage new industry growth. The "Silicon Island" is Japan’s answer to the US' Silicon Valley and Taiwan’s Hsinchu Science Park. 

The island of Kyushu (called Silicon Island by the industry media) is home to companies like Tokyo Electron, Renesas, and Sony, which already makes it a hub for hosting technology businesses operating in Japan. Backed by significant investment from the Japanese Government, the country invited TSMC to set up shop on the island, which opened in February 2024—and could mark the beginning of a major innovation and recruitment drive. 

This also comes as tensions rise between China and Taiwan, which has resulted in more and more speculation over Taiwan’s position—vulnerability to China being the key concern. Considered a ‘breakaway province’ of China, Taiwan is susceptible to further pressures on its independence, which is ample motive to spread its influence across other Asian countries like Japan. 

Japanese Chip Supply Chain Hurdles

There are very few mentions of supply chain challenges in relation to Japan, but, instead, there are talks of Japan’s comeback as trade relations weaken between China and the rest of the world.

One major hindrance to Japan’s growth back in the 80s was Taiwan’s talent pool—as Silicon Island welcomes TSMC the talent will likely follow. If Japan were to regain its leading position, its primary focus is delivering more opportunities to professionals in the industry. 

Recouping Talent: While Japan has set aside heavy investment in more factories to regain its position in the chip industry, the skills required to operate those facilities could be its main sticking point. Japan will encourage more talent by increasing the value of salaries and the number of engineer positions across its manufacturing footprint. TSMC will support this (and any future additions to Silicon Island). Businesses in the chip sector are offering higher salaries and 19.5% offer remuneration in excess of six million Japanese Yen (equivalent to almost US$41,000), which may be the incentive applied to engineer and development roles in Japan. 

Geopolitical Challenges: More of a risk than a challenge, the tensions in the Taiwan Strait could prove bothersome for Japan as it expands its semiconductor presence. With this held over the heads of neighboring nations, Japan will likely have to consider alternative strategies for the supply of critical parts and materials. Taiwan’s and Japan’s semiconductor industries have been closely linked for some time; linked by provisions of silicon wafers, and machine equipment, as well as chemicals and other consumables in chip manufacturing. 

Corporate Culture: In light of the need for more skilled people in Japan’s semiconductor industry, a rigid corporate culture might hold back development opportunities—especially as modern businesses recognize the importance of flexibility and career development in the workforce. Notoriously compliant with the traditional corporate structure, Japan’s ability to move with the times might outweigh its dedication to providing industrial excellence.

Does Japan Have a Shot at Redemption?

It will not come cheap, but the inherent value in semiconductor investments will be beneficial to the country from an economic point of view. Given its previous dominance in the semiconductor market, welcoming in new participants in its growth will surely provide the expertise required to encourage more talent and successful returns on Japanese Government investments.

To regain its leading position, Japan will need to focus on: 

• Securing the Supply Chain: With tensions across the continent, the Japanese industry would need to focus heavily on tightening its supply chain in order to build long-standing relationships with buyers across the globe. 
• Partnerships/Relationships: Combining efforts with some of the core semiconductor manufacturing companies will play a major role in Japan’s supply chain development, but also increasing the opportunities for the country. This will likely be the premise for Silicon Island as it evolves to become a primary asset for the country as a whole. In terms of relationships with other nations, Japan seemingly has the US on its side, having banned the import of advanced technologies from China. 
• Building Its Talent Pool: Having lost much of its talent and skills to leading businesses, supporting the likes of TSMC and other global chip manufacturers will be a win-win scenario—as Japan wants to rebuild its technology infrastructure while Taiwan looks to build resilience against pressures from China. 
• Emerging Trends: One of the core trends of today’s technology sector is traceability and emissions reduction in manufacturing. Incorporating sustainability into its development plans is paramount if the country wants to win back a share of the market. This, and other forward-thinking initiatives, could allow Japan to regain significance in the modern technology landscape. There are also current technological elements, such as the increasing demand for AI chips and processing units for datacenter applications. 

In light of the current relationship between China and the US, and past experiences, Japan will be paying close attention to the needs of other countries. Growth in the country’s technology industry will likely pique the interest of world leaders, and so it must be ready to provide value in order to maintain its position as it grows. Financial backing from its government is invaluable in bringing Japan’s semiconductors to the global market.