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Japan's $12bn gamble: Turning Hokkaido into a semiconductor powerhouse
Japan is pouring billions into transforming Hokkaido-its northernmost island known for dairy farms and ski resorts-into a global hub for cutting-edge semiconductors, aiming to reclaim its lost dominance in the $600bn chip industry by 2027.
The ambitious push centers on Rapidus, a government-backed startup with corporate giants like Toyota, SoftBank, and Sony as investors. With $12bn in state funding, the company is constructing Japan's first advanced chip foundry in decades in the city of Chitose, targeting mass production of 2-nanometer (2nm) transistors-a milestone only achieved by TSMC and Samsung so far.
Why Hokkaido?
Rapidus CEO Atsuyoshi Koike cites Chitose's stable water and electricity infrastructure, lower earthquake risk, and natural scenery as key factors. The factory's design even includes a grass-covered exterior to blend with the landscape. The region's historical lack of heavy industry-beyond agriculture and tourism-has left locals skeptical, but officials hope the project will reverse decades of economic stagnation.
Hokkaido's transformation mirrors a broader strategy: build a "fab," and an ecosystem follows. TSMC's existing plants in Kyushu have already revitalized local economies, attracting suppliers and raising wages. Now, Hokkaido is seeing similar momentum, with ASML and Tokyo Electron opening offices in Chitose alongside Rapidus's facility.
Breaking barriers: Japan's 2nm breakthrough
In a landmark achievement, Rapidus produced prototype 2nm transistors earlier this year-a first for Japan-using an EUV lithography system from Dutch firm ASML. The feat, accomplished in partnership with IBM, positions Japan alongside Taiwan and South Korea in the race for next-gen chips. Koike attributes the speed to global collaborations, calling them "essential" for acquiring the necessary expertise.
"We succeeded in manufacturing the 2nm prototype for the first time in Japan, and at an unprecedented speed globally."
Atsuyoshi Koike, CEO of Rapidus
Yet challenges loom. Mass production requires yields and quality levels that rivals like TSMC have spent years perfecting. Analysts warn Rapidus lacks experience and may struggle to secure customers, given TSMC's and Samsung's entrenched relationships. A 2024 report by the Asean+3 Macroeconomic Research Office noted that Rapidus's $12bn funding falls short of the estimated $31.8bn needed for full-scale production.
The stakes: National security and economic revival
Japan's semiconductor revival is as much about economics as geopolitics. The country once produced over 50% of the world's chips in the 1980s but now accounts for just 10%, ceding ground to Taiwan and South Korea after trade tensions and subsidy cuts. Today, with AI fueling chip demand and supply-chain risks escalating-particularly amid China-Taiwan tensions-Tokyo views domestic production as a national security priority.
Beyond Rapidus, Japan is backing a constellation of projects:
- TSMC is expanding in Kyushu, with a second plant due by 2027.
- Micron received $3.63bn to grow facilities in Hiroshima.
- Samsung is building an R&D center in Yokohama.
- Kioxia and Toshiba are expanding fabs with state support.
The government's $65bn AI and semiconductor package, unveiled in late 2024, underscores its commitment. Yet obstacles remain: a shrinking workforce, an aging population diverting funds from R&D, and a projected shortage of 40,000 semiconductor engineers. Rapidus is partnering with Hokkaido University to train workers but acknowledges reliance on foreign talent-a politically sensitive issue in Japan.
Speed as the competitive edge
Koike insists Rapidus won't compete directly with TSMC or Samsung. Instead, its advantage lies in customization and speed, promising to deliver chips "three to four times faster" than rivals. "TSMC leads the world, with Intel and Samsung close behind," he said. "Our edge is agility."
The strategy aligns with Japan's broader goals: securing supply chains for automakers still reeling from pandemic-era shortages and reducing dependence on foreign suppliers. As Koike put it: "We'd like to provide products from Japan once again-products that are powerful and with great new value."
Analysts: A high-risk, high-reward bet
Skeptics question whether Rapidus can overcome its inexperience and funding gaps. The Center for Security and International Studies (CSIS) has cast doubt on its ability to access critical know-how from TSMC or Samsung. Others, like Naoyuki Yoshino, professor emeritus at Keio University, argue that Japan's failure to sustain subsidies in the 1980s left its chipmakers vulnerable-a mistake the government is now rushing to correct.
Yet if successful, Hokkaido could become Japan's answer to Silicon Valley-a "Hokkaido Valley" that reshapes the global semiconductor map. For a nation grappling with demographic decline and slowing growth, the gamble may be its best shot at reclaiming tech leadership.
