Japanese Semiconductor Industrial Policymaking in the Twenty-First Century

A preceding Perspectives on Innovation piece, "Japan's Semiconductor Industrial Policy from the 1970s to Today" can be read here

By: Hideki Uno

 
Recognizing that semiconductors and the technologies they power are critical to the national security of the United States and its allies, the U.S. government announced in July 2022 its commitment to collaborating closely with Japan to achieve a stable and secure semiconductor supply chain. The Japanese government is also very aware of the impacts of China’s innovation policies on Japan's semiconductor industry. In response, Japan has begun to make major investments to strengthen its domestic semiconductor industry. To partner effectively on supply chain issues, the United States and Japan will need to better understand each other’s systems and policies. Below, we review the structure and initiatives now shaping Japan’s policymaking.
 
Primary Actors in Japanese Semiconductor Policy
Japanese government officials, Prime Minister Fumio Kishida's cabinet, and members of Japan’s Diet (Japan’s bicameral parliament) are jointly exploring ways to provide long-term government support for the semiconductor industry.
 
In May 2021, Japan's Diet established the congressional caucus for Japanese semiconductor policy whose initial members were former secretary-general of the Liberal Democratic Party (LDP) Amari Akira, former prime minister (PM) Shinzo Abe, former PM and current vice-president of the LDP Aso Taro, and over 100 other LDP members. This caucus, one of the largest in Japan's Diet, invites private-sector executives and representatives of government agencies to gather opinions and make recommendations to the government on Japan's semiconductor industry. Recently, Amari Akira, chairman of the caucus and one of Japan’s most influential politicians, has strongly called for long-term, large-scale support for "more than $100 billion in public-private investment in the semiconductor industry over 10 years."
 
With such significant support from Chairman Amari and other members of the congressional caucus, the Ministry of Economy, Trade, and Industry (METI) has prepared a "Semiconductor and Digital Industry Strategy" to secure budget funding for greater public-private investment in the semiconductor industry. In addition to METI’s strategy, the Cabinet Office, the Ministry of Internal Affairs and Communications (MIC), and other relevant ministries and agencies submit budget requests to the Diet every year and are likely to submit additional funding requests for semiconductor-related projects due to the LDP’s strong support for investment in the semiconductor industry.
 
The LDP’s recommendation paper identifies strategic autonomy and strategic indispensability as two key pillars of policy formulation and implementation. “Strategic autonomy” refers to the realization of Japan's security objectives without excessive dependence on other countries. “Strategic indispensability” means further strengthening areas in which Japan can have or already has strengths in the global semiconductor supply chain. Below are a variety of initiatives which the Japanese government is carrying out that are aimed at ensuring the “strategic autonomy” and “strategic indispensability” of Japan’s semiconductor industry, in line with the LDP’s recommendation paper.
 
Initiatives to Ensure “Strategic Autonomy”

Update Japan’s domestic fabrication facilities:
To ensure “strategic autonomy,” the Japanese government intends to develop new infrastructure so that semiconductors can be manufactured domestically. The government is providing subsidies to help foundry businesses renovate and expand their existing factories.
 
Attract overseas foundries to Japan:
According to an article published in The Nikkei, although Japan has the world's largest number of semiconductor factories, Japan is only able to manufacture logic chips that are 40 nanometers (nm) or larger. The Japanese government recognizes the importance of developing semiconductor manufacturing capabilities for smaller, more efficient, higher-end (5nm to 16nm) and mid-range chips (20nm to 40nm). Circuit miniaturization lowers power costs and speeds up operation. To this end, the government has passed a legislative amendment that establishes a new subsidy program for attracting fabrication facilities and a statutory fund to provide support over multiple years.
 
The first example of the Japanese government providing funding to attract overseas foundries was the decision to subsidize up to $4.76 billion for a semiconductor plant being constructed by Taiwan Semiconductor Manufacturing Corporation (TSMC), Sony Group, and Denso in Kumamoto Prefecture. In addition, the government is providing up to $929 million in subsidies to support the construction of Kioxia's Mie plant.
 
Secure Japan’s critical mineral supply:
The Japanese government has been promoting the stable procurement of rare earth elements since 2000 to decrease dependence on China, which currently provides 60 percent of Japan’s imports of rare earth elements. At the end of 2021, Japan's Diet amended the national “Mining Act” in order to enable government agencies in Japan to take further steps that will allow for the domestic harvesting of rare earth elements. For example, in 2013, an investigation led by the Japan Agency for Marine-Earth Science and Technology discovered ultra-high concentrations of rare earth mud in the exclusive economic zone of Minamitori Island. Under the amended Mining Act, this area can now be further surveyed and developed. Moreover, another recently passed law recently passed that allows the Japan Oil, Gas, and Metals National Corporation to expand its investments in the exploration and development of mines.
 
In addition to these legal revisions, Japan was the chair of the Annual Critical Materials and Minerals Meeting in 2021, held since 2011 as part of a cooperative effort among Japan, the U.S., the European Union, Australia, and Canada to secure crucial supply chains. The U.S. and Japan also plan to work closely with other partners through the Minerals Security Partnership announced on June 14, 2022, in Toronto.
 
Initiatives to Ensure “Strategic Indispensability”

Support joint development of advanced logic semiconductors:
Given that demand for advanced logic chips is expected to skyrocket in the years ahead, Japanese industry, government, and academia are working together to increase production of advanced logic semiconductor manufacturing technology. One example of public-private cooperation is the decision by Japanese government to provide approximately $420 million in subsidies to support the development of advanced semiconductor manufacturing technology in Japan from 2021–2025. This project is divided into two parts: 1) a project to establish a domestic 2nm chips manufacturing process and 2) another project to develop an advanced semiconductor packaging method.
 
For the first project, the National Institute of Advanced Industrial Science and Technology will set up a pilot line for the 2nm chips to secure the most advanced technology for manufacturing logic semiconductors in Japan. Tokyo Electron, Screen Semiconductor Solutions, and Canon Inc. will develop cutting-edge semiconductor equipment, while universities and companies categorized as secondary members will have access to the pilot line. TSMC, Intel, and other companies are sponsoring the consortium, and the Japanese government is seeking further technology partnerships with IBM and Intel to enable Japan to produce smaller chips.
 
For the other project, TSMC’s Japan 3DIC R&D Center and the National Institute of Advanced Industrial Science and Technology will collaborate to develop reliable advanced assembly technology called a “3D assembly process.”
 
These two international R&D projects have the potential to establish Japan’s semiconductor industry as an integral part of the global supply chain for advanced logic semiconductor manufacturing and related technologies.
 
Promote development of next-generation semiconductor manufacturing technology:
In addition to supporting the joint development of advanced logic semiconductors, the Japanese government is providing approximately $500 million in R&D funding to support efforts by Japanese companies to develop ultra-efficient, next-generation power semiconductors suited for electrical equipment that can handle high voltages and large currents (SiC, GaN, Ga2O3). Demand for these power semiconductors is currently increasing as a result of high demand for electric vehicles and smartphones.

The government is also funding efforts by Japanese companies to develop semiconductors enabled with photoelectric fusion technology that integrates optical and electrical signals to significantly increase transmission speed and processing performance.
 
In addition to efforts by the Japanese government, more than 100 companies are working together at one of Japan's largest semiconductor manufacturing facilities at Tohoku University in Sendai to develop next-generation semiconductor.

Increase Japan’s production of domestic raw materials and equipment for semiconductor manufacturing:
Japanese companies account for a large share of the global market when it comes to producing raw materials and equipment used in the semiconductor manufacturing process. The Japanese government has provided subsidies to 134 semiconductor-related companies, both large and small, to further increase production domestically to ensure that global markets continue to rely heavily on Japan for semiconductor manufacturing.
 
Furthermore, Japan's cabinet will identify semiconductors as a "specified critical material" in accordance with Japan’s "Economic Security Promotion Act" enacted in May 2022 and a decision by PM Kishida’s cabinet. If this happens, eligible private businesses will be able to receive support such as subsidies and low-interest loans to produce raw materials needed for manufacturing semiconductors. The identification of specified critical materials will be enforced by February 11, 2023.

In addition, the National Institute for Materials Science (NIMS) and five universities, including Tokyo University, are playing a central role in establishing a system that enables the sharing of research facilities and data among 25 universities and research institutes nationwide to support semiconductor research.
 
Japanese government officials, Prime Minister Fumio Kishida's cabinet, and Diet representatives are working together to formulate policies to ensure Japan’s “strategic autonomy” and “strategic indispensability” in semiconductors. Analyzing Japan's new semiconductor industrial policies could help U.S. and Japanese counterparts find effective ways to commit to greater U.S.-Japan technological collaboration. This includes the joint task force—called for in the May 2022 joint statement by President Biden and PM Kishida—to explore the development of next-generation semiconductors based on “the Basic Principles on Semiconductor Cooperation” adopted in the Japan-U.S. Commercial and Industrial Partnership.
 
Hideki Uno is an intern with the Renewing American Innovation project at the Center for Strategic and International Studies in Washington, D.C.

The Perspectives on Innovation Blog is produced by the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).