Chips in Japan: Industrial policy, decline and renewal

Japan, once the global leader in semiconductors, has re-emerged as a major player in industrial policy for chips amid supply chain shocks and rising geopolitical competition. This paper examines the historical trajectory of Japan’s semiconductor industry, its decline from dominance in the 1980s and its current revival strategies. We analyze the drivers of past success and the subsequent erosion of competitiveness due to trade disputes, structural rigidities and missed transitions to new business models. Against this backdrop, the paper describes Japan’s recent interventions, including subsidies, tax incentives and public–private partnerships, with a particular focus on the Japan Advanced Semiconductor Manufacturing fabrication plants in Kumamoto and the Rapidus project in Hokkaido. These initiatives highlight contrasting models of international collaboration and domestic technological ambition, raising questions about risk, sustainability and integration with global value chains. We assess progress to date, challenges in financing, human capital, technological feasibility and the implications of Japan’s strategy for global semiconductor governance. The paper concludes by distilling lessons for effective industry policy, emphasizing openness, diversification, performance-linked support and the importance of international cooperation in avoiding subsidy races while building resilient ecosystems.