Japan’s Semiconductor Dilemma: From Technology Leader to Laggard — Geopolitical Pressure and Industrial Reality
The world’s leading semiconductor manufacturer, TSMC (Taiwan Semiconductor Manufacturing Company), has announced plans to invest approximately USD 17 billion in the construction of a state-of-the-art chip fabrication plant in Japan. The new facility will manufacture semiconductors using the advanced 3-nanometer process, one of the most sophisticated technologies currently available in chip production. The project represents a significant step in the global restructuring of the semiconductor industry.
TSMC CEO C.C. Wei presented the project alongside Japanese Prime Minister Sanae Takaichi, emphasizing that the new factory will not only support Japan’s technological ambitions in the field of artificial intelligence, but also help strengthen and secure international supply chains. Against the backdrop of growing geopolitical tensions and the heavy dependence on a limited number of production locations, the diversification of chip manufacturing is becoming increasingly important.
For Japan, the investment is a key component of its national strategy to promote high technology and economic security. By expanding domestic semiconductor production, the country aims to reinforce its position as a leading technology hub while simultaneously improving supply security for key industries. TSMC’s decision thus underscores Japan’s growing role in the global semiconductor landscape.
For decades, Japan was regarded as one of the leading nations in the global semiconductor industry. Technological excellence, strong industrial companies, and high manufacturing expertise long shaped the country’s international image. It is therefore all the more striking that Japan today must make considerable efforts to reconnect with the forefront of modern chip manufacturing. The recent agreement with the Taiwanese contract manufacturer TSMC does not represent a sudden success, but rather the outcome of a long learning process. The following chronological error analysis outlines the strategic, economic, and political shortcomings over past decades that ultimately led Japan to take this step only now.
1. Loss of Technological Leadership (late 1980s to 1990s)
In the 1980s, Japan ranked among the world’s leading nations in the semiconductor industry. In the years that followed, however, the country failed to secure this position. While international competitors increasingly invested in advanced logic chips, Japanese companies adhered to existing business models. The focus was on incremental improvements rather than technological leaps, particularly with regard to ever-smaller manufacturing nodes.
2. Insufficient Investment in Cutting-Edge Manufacturing Technologies (1990s to early 2000s)
With the transition to sub-10-nanometer technologies, investment costs for new production facilities rose dramatically. Japanese companies and government actors assessed these investments as economically too risky. As a result, necessary large-scale investments were postponed or abandoned altogether, while international competitors consistently invested in new generations of manufacturing technology.
3. Lack of a Long-Term Government Industrial Policy (2000s)
Unlike other leading semiconductor nations, Japan failed for many years to develop a coherent, long-term strategy to secure domestic chip manufacturing. Government support programs remained limited, fragmented, and insufficiently focused on future technologies. Market forces were largely expected to drive development, further weakening international competitiveness.
4. Overemphasis on National Champions and Delayed International Cooperation (2000s to 2010s)
For a long time, Japan pursued an industrial policy centered on national champions. This approach hindered early and deep cooperation with foreign semiconductor manufacturers. Potential partnerships with globally leading foundries such as TSMC were not actively pursued, causing Japan to lose connection to international innovation networks.
5. Underestimation of Geopolitical and Supply Chain Risks (2010s)
The increasing concentration of semiconductor manufacturing in East Asia, particularly in Taiwan, was for years viewed primarily through the lens of efficiency. Strategic dependencies, security risks, and potential supply chain disruptions played only a limited role in political decision-making. The national security dimension of semiconductor production was recognized only at a late stage.
6. Delayed Response to the Rise of AI and High-Performance Computing (late 2010s)
The rapid rise in importance of artificial intelligence and high-performance computing turned advanced semiconductor technologies into a central economic and strategic factor. Japan reacted relatively late to this development and only belatedly recognized that access to the most advanced manufacturing processes plays a key role in future competitiveness and technological sovereignty.
7. Strategic Shift Under External Pressure (from 2020 onward)
Only the global chip shortage, the COVID-19 pandemic, and growing geopolitical tensions triggered a fundamental reassessment. Influenced by international subsidy programs and increasing security concerns, Japan decided to adopt a more active industrial policy. The agreement with TSMC represents the outcome of this delayed but strategically necessary shift.
Summary
The chronological error analysis demonstrates that Japan’s current dependence on foreign semiconductor manufacturing is the result of long-term structural shortcomings. After a leading role in the 1980s, Japan failed to make a timely transition to increasingly advanced manufacturing technologies and gradually withdrew from the top tier of logic chip production. High investment costs, a cautious government industrial policy, and the absence of a clear long-term strategy further weakened international competitiveness. At the same time, Japan relied for years on national suppliers and delayed international cooperation, losing touch with global innovation networks. Geopolitical risks and the growing vulnerability of global supply chains were underestimated for a long time, as was the strategic importance of AI and high-performance computing. Only external shocks such as the global chip shortage and rising geopolitical tensions led to a fundamental change in course. The agreement with TSMC is therefore less a fresh start from a position of strength than a necessary correction of earlier strategic missteps.
