Japan announces $65bn in subsidies and other incentives to boost production of advanced chips and AI semiconductors amidst China sanctions

Japan is to invest $65 billion (£50bn) to boost its semiconductor and artificial intelligence chip industries through subsidies and other measures under a plan announced by prime minister Shigeru Ishiba late on Monday.

The 10tn yen ($65bn) plan is to extend through fiscal 2030 as several countries and regions try to exert more control over fickle chip supply chains amidst political tensions between the US and China that are expected to intensify under the second Trump administration beginning in January.

“We will formulate a new assistance framework to attract more than 50 trillion yen in public and private investment over the next 10 years,” Ishiba told a press conference.

The plan, including bills to boost the mass-production of next-generation chips, is expected to be submitted to the upcoming Parliament session.

Chip foundry start-up Rapidus and other firms focused on AI chips receive a particular focus under the plan, which the government said it expects to catalyse a total economic impact of around 160tn yen.

AI chips

Rapidus, in partnership with IBM and Belgium-based research organisation Imec, is aiming to produce cutting-edge chips on the island of Hokkaido from 2027.

Ishiba said the government would not issue deficit-covering bonds to finance the plan, but did not indicate how it would be funded.

The plan is part of the government’s economic package set to be approved by the cabinet on 22 November.

Ishiba said the government would meet with business and labour union representatives this month over annual wage negotiations, as the government seeks to mitigate the effect of rising living costs.

Last year chip equipment industry association SEMI said it expected Japan to sharply increase its spending on semiconductor equipment, as it seeks to bolster its position in the market and take advantage of chip restrictions targeting China.

Japan joined the US’ China sanctions in the spring of 2023 with export controls of its own.

SEMI said at the time it expected Japan to increase its spending on wafer fabrication plant equipment in 2024 by 82 percent over the previous year.

Industry boost

That compared with a 2 percent increase for China and amounts to higher than the combined spending in the area in Europe and the Mideast.

The spending jump was an indication of how Japan is looking to take advantage of the US effort to limit China’s chip ambitions by developing next-generation chips and attracting domestic chip manufacturing facilities.

The country was a dominant chip producer in the 1980s, becoming the world’s biggest semiconductor supplier in 1986, surpassing the US.

In the late 1980s the US brought various measures into play that limited Japan’s expansion and allowed American producers to regain the top spot in the early 1990s, before ceding the role to Taiwanese and South Korean firms such as TSMC and Samsung Electronics.

China alluded to those US measures in a meeting with Japanese officials last year, urging Japan not to take part in similar measures against China.

“Don’t do to others what you don’t want others to do to you,” said Chinese foreign minister Qin Gang at the time.