Forgotten Tech Power Japan Struggles to Regain Its Glory [Tech War, Birth of Advanced Nations]

Decline in Productivity and Corporate Competitiveness Since 2000s
Japan Establishes Economic Security Strategy... Focuses on Strengthening Semiconductor Technology Alliance with US and Taiwan

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Japan is making efforts to regain its reputation as a technology powerhouse through the establishment of a government-led economic security system and alliances with the United States and other allied countries.

According to local foreign media such as Japan's Nihon Keizai Shimbun, the current Japanese Cabinet led by Fumio Kishida is prioritizing economic security as a core policy. Upon the Cabinet's inauguration in October last year, the position of Minister of Economic Security was newly established, and a member of the House of Representatives with a background as a Ministry of Finance bureaucrat was appointed. They immediately pushed for the enactment of the Economic Security Promotion Act, which passed the Diet on the 11th of last month, just six months later. This law strengthens the supply chains for strategically important materials such as semiconductors and requires government pre-screening to guard against cyberattacks when infrastructure operators in energy, finance, and telecommunications introduce equipment. The law will be implemented gradually starting in 2023.

The foundation of the economic security policy promoted by the Kishida Cabinet lies in two core principles established by the ruling Liberal Democratic Party in December 2020 when formulating the economic security strategy. These are “strategic indispensability,” which strategically expands areas where Japanese technology is indispensable in the global value chain, and “strategic autonomy,” which ensures that Japan can operate normally without dependence on other countries under any circumstances.

In line with the government's moves, companies are preparing accordingly. Nihon Keizai reported last month in a special feature titled “Moving Economic Security” that since the Economic Security Act was disclosed to Japanese law firms in February, there has been a continuous stream of consultations from corporate officials asking about patent confidentiality and other matters, and it is expected that coordination with the industry will be achieved before the law's enforcement.

While the Japanese government is focusing internally on building a system related to economic security, externally it is concentrating on cooperation with allied countries. In particular, it is making efforts to secure production facilities by partnering with major strategic powers in fields such as semiconductors, including the United States and Taiwan. These efforts are interpreted as a strategic priority to secure production facilities externally, recognizing that Japan’s semiconductor production facilities and corporate competitiveness have weakened since the 2000s and cannot be immediately improved.

Japan’s most representative ally is the United States. Last month, coinciding with U.S. President Joe Biden’s visit to Japan, the two countries agreed to strengthen semiconductor cooperation. It is reported that the U.S. and Japan are preparing to establish a working group for joint research on semiconductors of 2 nanometers (nm; 1 nm is one-billionth of a meter) or smaller. Nihon Keizai also reported on the 15th that the U.S. and Japan plan to build a next-generation semiconductor hub in Japan as early as 2025. The U.S. and Japan are expected to build a symbiotic relationship by each taking charge of their respective strengths in advanced semiconductor design technology and semiconductor materials technology.

News of cooperation between Japan and Taiwan is also increasing. TSMC, the world’s leading foundry (semiconductor contract manufacturing) company, recently opened a semiconductor research and development center in Japan. The Japanese government supported about half of the project cost, approximately 19 billion yen. In addition to the R&D center, TSMC is investing 476 billion yen to build a semiconductor factory in Kumamoto through a joint venture established with Sony. Although there is criticism within Japan about providing large-scale funding to foreign companies, the Japanese government is actively supporting this under the judgment that securing production facilities is a priority. To assist TSMC and others facing local labor shortages, the Japanese government has also decided to establish educational programs related to semiconductor manufacturing and development at technical colleges in the Kyushu region of Japan.