Japan is intensifying its efforts to revive its once dominant semiconductor industry.

• By fiscal 2030, the Japanese government will allocate at least 10 trillion yen ($65 billion) in support.
• The funding is part of efforts to revitalize the country's semiconductor industry through its state-backed chip venture, Rapidus, and by onshoring facilities from leading chipmakers.

Japan has unveiled a new strategy to rejuvenate its semiconductor and artificial intelligence sectors in an effort to reclaim its position as a global chip leader.

Earlier this week, Prime Minister Shigeru Ishiba stated that the proposal would offer at least 10 trillion yen ($65 billion) in support by fiscal 2030.

Ishiba stated that a new assistance framework will be established to attract more than 50 trillion yen in public and private investment over the next decade as part of broader "revitalization" efforts in Japan.

The comprehensive economic package, to be finalized in November, will include a plan that will be financed through subsidies, government institution investments, and debt guarantees, according to local media.

Japan is taking steps to strengthen and expand its semiconductor industry, with the government aiming to increase sales of domestically produced chips to over 15 trillion yen by 2030.

Domestic chip hero?

Japan-based Rapidus, a state-backed chip venture, is likely to benefit from the funding announced Monday as part of the country's chip revitalization efforts.

The Japanese government founded Rapidus in 2022, and it has the support of major Japanese companies such as Toyota Motor and the Sony Group. Rapidus is also working with IBM, a U.S. tech giant.

By 2027, the company aims to mass-produce 2-nanometer logic chips with the help of over $2 billion in government support.

Advanced logic chips are utilized in AI, quantum computing, and machine learning technologies to process information and accomplish tasks within electronic devices.

Tetsuro Higashi, Rapidus chairman, is reportedly calling Japan's chance to regain a leading semiconductor position globally as it aims to close the gap with leaders like Taiwan and South Korea.

In the 1980s, Japan held a dominant position in the global chip market, accounting for more than half of the worldwide semiconductor market.

With the emergence of foreign competitors like Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea's Samsung Electronics, the country began losing its leading edge as the world's dominant contract chip manufacturer.

By 2025, both Samsung and TSMC plan to commence commercial production of 2-nanometer chips.

The Netherlands produces the world's most advanced chip-making equipment, while companies like Intel and AMD have become key players in chip design in the U.S.

Feasibility

Despite losing its dominance in semiconductor production and manufacturing, Japan still leads in certain semiconductor materials and equipment, according to Michael Yang, senior director of semiconductors at Omdia, who spoke to CNBC.

The country should expand into other aspects of the supply chain and enhance its position through its chip subsidies, which have primarily focused on increasing manufacturing capacity, Yang stated.

To regain the chip market, Japan will face a tough battle and Rapidus must find a "shortcut" in chip design and production to catch up with leading semiconductor companies, according to Brady Wang, semiconductor analyst at Counterpoint Research.

According to Rapidus representatives, the architecture of the 2-nanometer chip differs from that of 3-nanometer chips, making it a "blank-slate challenge for all players" and providing a prime opportunity to enter the market.

TSMC took over a decade to catch up to global chip firms and build relationships with customers, despite subsidies being necessary but not a guarantee of success, according to Wang.

According to Ken Kuo, senior research vice president at TrendForce, while subsidies are necessary to enter the semiconductor industry, achieving success requires additional measures, including talent, technology, and strategic planning.

Learning from the best

To attract global chip leaders, subsidies have been offered in addition to the effort to establish a dominant chip producer in Japan.

The Japanese government has secured billions of dollars in investments from chipmakers such as TSMC, Samsung Electronics, and Intel Corp.

Memory chips used in data centers for AI and cloud computing are produced by companies that are leaders in this field.

TSMC has revealed plans to construct a second fabrication plant in Japan before the completion of its first.

Wang believes that attracting companies to enter Japan can aid in rapidly increasing vertical integration in the supply chain and developing a robust semiconductor ecosystem.

Japan has entered into collaboration agreements with allies such as the U.S., the U.K., Taiwan, and several EU countries to advance research and development of next-generation semiconductors.

— CNBC's Arjun Kharpal contributed to this report