Japan is investing billions into Hokkaido, an island known for its agriculture and tourism, to transform it into a global hub for advanced semiconductor manufacturing. This ambitious plan aims to revive the country's chip-making capabilities and secure its economic future in the competitive global market.
The northernmost of Japan's main islands, Hokkaido traditionally provides over half of the nation's dairy produce. Its landscapes are famous for ski resorts in winter and vast fields of lavender, poppies, and sunflowers in summer. Now, cranes dot the skyline, building factories, research centers, and universities focused on high technology.
Key Takeaways
- Japan commits $12 billion to Rapidus, a new chip company, to build a 2nm semiconductor factory in Chitose, Hokkaido.
- Rapidus successfully produced a prototype 2nm transistor, a feat only achieved by TSMC and Samsung.
- Japan's government plans to invest $65 billion into AI and semiconductors, aiming to regain its position in the global chip market.
- The initiative faces challenges including significant funding gaps, lack of prior experience in advanced chip manufacturing, and a shortage of skilled engineers.
Hokkaido's New Economic Direction
This industrial push represents Japan's most significant effort in a generation to re-establish itself in the semiconductor industry. The country aims to become a key player in the $600 billion global computer chip market, a move some are calling the creation of "Hokkaido Valley."
For years, Hokkaido's economy has relied heavily on agriculture and tourism. Locals often noted a lack of diverse industries, leading to a common saying that people only visit Hokkaido to eventually leave. This new initiative seeks to change that perception, creating long-term economic opportunities.
Rapid Investment
Between 2020 and early 2024, Japan's government invested $27 billion into its chip industry. This commitment is larger relative to its Gross Domestic Product (GDP) than the US CHIPS Act.
Rapidus Leads the Charge
At the center of this national strategy is Rapidus, a relatively new company backed by the Japanese government and major corporations like Toyota, Softbank, and Sony. Rapidus emerged from a partnership with IBM and has secured billions in funding to build Japan's first cutting-edge chip foundry in decades.
The government has allocated $12 billion to Rapidus for constructing a massive semiconductor factory, known as a "fab," in the small city of Chitose, Hokkaido. Atsuyoshi Koike, CEO of Rapidus, selected Chitose for its reliable water and electricity infrastructure, as well as its natural environment.
"We succeeded in manufacturing the 2nm prototype for the first time in Japan, and at an unprecedented speed in Japan and globally," stated Mr. Koike.
Mr. Koike oversaw the fab's design, which includes a grass-covered exterior to blend with Hokkaido's landscape. Local authorities also highlighted the region's lower risk of earthquakes compared to other potential sites in Japan, adding a layer of security for the high-tech facility.
Achieving 2nm Prototype Production
A significant milestone for Rapidus occurred with the delivery of an extreme ultraviolet lithography (EUV) system from the Dutch company ASML. This advanced machinery played a crucial role in Rapidus's biggest achievement this year: the successful production of prototype two-nanometer (2nm) transistors.
These ultra-thin chips represent the forefront of semiconductor technology, enabling devices to operate faster and more efficiently. This accomplishment places Rapidus alongside industry leaders TSMC and Samsung, who are currently the only other companies to have achieved this feat.
Mr. Koike attributes this breakthrough to the partnership with IBM, emphasizing that collaborations with global companies are essential for acquiring the technology needed to produce such advanced chips.
Challenges and Skepticism
Rapidus aims for mass production of 2nm chips by 2027. However, the company faces significant challenges. The primary hurdles involve achieving the necessary yield and quality to compete in an intensely competitive market, areas where Taiwanese and South Korean companies currently excel.
A 2024 report by the Asean+3 Macroeconomic Research Office noted that despite government subsidies and consortium contributions, the financing for Rapidus "falls short of the expected 5 trillion yen ($31.8 billion) needed to start mass production."
Japan's Semiconductor History
Forty years ago, Japan produced more than half of the world's semiconductors. Today, that figure stands at just over 10%. This decline is often attributed to US-Japan trade tensions in the 1980s and a failure to sustain competitive subsidies, allowing Taiwan and South Korea to gain market share.
The Center for Security and International Studies (CSIS) has also raised concerns, stating that "Rapidus has no experience in manufacturing advanced chips." They question the company's ability to access the necessary know-how from experienced manufacturers like TSMC and Samsung.
Finding customers will also be a challenge. Samsung and TSMC have long-standing relationships with global companies that have relied on their chips for years. Rapidus will need to carve out its own niche.
Broader Economic Landscape and Talent Shortage
Japan's broader economic challenges add complexity to this ambitious project. The country faces a shrinking population and a growing number of elderly citizens, which has influenced national budget allocations for years, slowing economic growth.
More than a third of Japan's national budget now goes to social welfare for the elderly. This reduces funds available for critical areas such as research, education, and technology development, as noted by Professor Emeritus Naoyuki Yoshino of Keio University.
Another pressing issue is a severe shortage of semiconductor engineers, with an estimated need for 40,000 additional workers in the coming years. Rapidus is partnering with Hokkaido University and other institutions to train new talent. However, the company acknowledges it will need to rely heavily on foreign workers, even as public support for incoming foreign labor remains low.
Building a Global Ecosystem
Despite the hurdles, Japan's government push is already attracting major global players. TSMC is producing 12–28nm chips in Kumamoto on the island of Kyushu. This development has transformed the local economy, drawing in suppliers, increasing wages, and spurring infrastructure growth.
TSMC began construction on a second plant on Kyushu in October, with production expected to start by the end of 2027. Beyond Rapidus and TSMC, local companies like Kioxia and Toshiba are also receiving government support to expand their facilities.
- Kioxia has expanded fabs in Yokkaichi and Kitakami.
- Toshiba has built a new fab in Ishikawa.
- ROHM is designated as a critical product provider under Japan's economic security framework.
American memory chipmaker Micron will receive $3.63 billion in subsidies from the Japanese government to expand its facilities in Hiroshima. Samsung is also building a research and development facility in Yokohama.
Hokkaido is experiencing similar momentum. Chipmaking equipment companies ASML and Tokyo Electron have opened offices in Chitose, following Rapidus's move to build its production facility there.
"This will make a form of 'global ecosystem,'" Mr. Koike explained, "where we work together to be able to produce semiconductors that contribute to the world."
Mr. Koike believes Rapidus's key advantage will be its ability to produce custom chips faster than competitors. He states that Rapidus can deliver chips three to four times faster than anyone else, providing a crucial edge in the global semiconductor race.
A High-Stakes Bet for the Future
Global demand for chips is surging, driven by the rise of AI technologies. Japan's automakers, still recovering from pandemic-era supply chain disruptions, are also pushing for more reliable, domestically or regionally sourced production across the entire supply chain.
Securing control over chip manufacturing has become a national security priority for many countries, including Japan. Recent trade frictions and geopolitical tensions, particularly between China and Taiwan, highlight the risks of relying on foreign suppliers for critical components.
"We'd like to provide products from Japan once again – products that are powerful and with great new value," Mr. Koike affirmed.
For the Japanese government, investing in Rapidus is a significant gamble to revive its semiconductor industry and broader technological power. Analysts suggest it may be the country's best opportunity to build a domestic ecosystem capable of supplying advanced chips to its numerous manufacturers, potentially establishing Japan as a formidable challenger in the global market.
