[Chiptalk] Will the new Prime Minister continue Kishida's carefully crafted dream of Japan's semiconductor revival?

Kishida Pours Investment for 3 Years to Secure Economic Security
Decision on Rapidus Support Pending... "1 Trillion Yen Needed"
"Skepticism Grows as Cohesion Weakens"

With former Secretary-General Shigeru Ishiba elected as the new leader of Japan's Liberal Democratic Party (LDP), attention is focused on whether the next prime minister will take an aggressive drive toward the goal of a "Japanese semiconductor revival." This is because it is a crucial time to sustain the momentum of semiconductor investments poured in over the past three years by the previous Kishida Fumio administration, which fiercely competed with major countries to build semiconductor supply chains.

Shigeru Ishiba, Japan's Next Prime Minister
[Image Source=Reuters Yonhap News]

According to Japanese media such as Nihon Keizai Shimbun, the biggest immediate mission related to semiconductors for the new prime minister is deciding whether to support Rapidus, a semiconductor company jointly established by the government and private firms. Rapidus plans to secure personnel and purchase equipment for prototype production starting in April next year. To buy equipment and so forth, it has become necessary to raise 1 trillion yen (approximately 9.2 trillion KRW) at this point. Until now, Rapidus intended to raise 100 billion yen from its investing companies within this year and cover the rest through bank loans and government subsidies.

The problem lies in the differing opinions between the government and the investing companies regarding funding. Rapidus was established by eight Japanese companies, including Toyota, Sony, NTT, NEC, SoftBank, and Kioxia, which invested a total of 7.3 billion yen. The investing companies argue that it is difficult to invest hundreds of billions of yen when the prototype's performance has not yet been confirmed and there is no certainty about securing customers. They are requesting active government support until the factory begins operation.

On the other hand, the government counters that it is difficult to inject more tax money if private companies do not invest, given that it has already promised a total support of 920 billion yen over three years. Reports even emerged that the Ministry of Finance, which manages the budget, and the Ministry of Economy, Trade and Industry, which leads semiconductor industry policy, clashed over the scale of support. Without government guarantees, financial institutions are reluctant to provide loans.

On the 19th, Saito Ken, Japan's Minister of Economy, Trade and Industry, judged that it would be difficult to submit a bill related to Rapidus support to the extraordinary Diet session within this year and decided to abandon the plan. With the possibility of an early dissolution of the House of Representatives following the leadership election, there are practical difficulties in proceeding with the process. Minister Saito announced that the bill would be submitted to the regular Diet session early next year to enable full-scale mass production starting in 2027 as planned.

Due to this atmosphere, there are concerns that Japan's semiconductor revival momentum could falter. In May 2021, then LDP Secretary-General Amara Akira, along with former Prime Minister Abe Shinzo and Deputy President Aso Taro, launched a parliamentary league within the LDP to promote semiconductor strategy, beginning to prepare support measures for the semiconductor industry. The political sphere viewed semiconductor revival as a national strategy necessary for economic security. Based on this, Japan's Ministry of Economy, Trade and Industry released the "Semiconductor and Digital Industry Strategy" in June 2021, presenting a roadmap for semiconductor industry revival, including securing manufacturing facilities, US-Japan collaboration for next-generation technologies, and future technology development.

Prime Minister Kishida, who took office in October 2021, strongly expressed enthusiasm to regain Japan's glory as a leader in the global semiconductor industry in the 1980s and poured out support measures. In particular, in November 2022, he promised large-scale support for Rapidus, established by domestic companies. One month before signaling his intention to resign, in July, he visited the Rapidus factory construction site and pledged to submit necessary bills to the Diet early. He emphasized planned large-scale investment and research and development support over several years in cooperation with the private sector.

At the same time, Japan attracted Taiwan's TSMC, the world's largest foundry (semiconductor contract manufacturer), and decided to provide subsidies for a second factory. Recognizing that building a semiconductor supply chain in a single country is difficult, Japan strengthened cooperation with the United States and others. Last year, coinciding with the G7 summit, Japan's leaders directly met with CEOs of global semiconductor companies such as Samsung Electronics, TSMC, Intel, and Micron to request investment in Japan.

Kazuto Suzuki, professor at the Graduate School of Public Policy, University of Tokyo, told Nihon Keizai, "As the current government's centripetal force weakens, skepticism about supporting Rapidus has grown. It is ultimately important for the next government to show a commitment to supporting semiconductors for Rapidus's success."

However, the semiconductor industry support issue did not receive much attention during this leadership election. Major economic policy issues in this election included regional revitalization, measures against high inflation, real wage increases, and regulatory reform. Sanae Takaichi, Minister in charge of Economic Security, former Minister Takayuki Kobayashi, and LDP Secretary-General Toshimitsu Motegi expressed emphasis on semiconductor policy and other advanced technology fields.

Meanwhile, according to data released this year by the Semiconductor Industry Association (SIA) and Boston Consulting Group (BCG), Japan's semiconductor production share is expected to decrease from 17% in 2022 to 15% in 2032. For logic semiconductors under 10 nanometers (nm; 1 nm is one-billionth of a meter), Japan's share is expected to increase from 0% to 5% during the same period.