Japan's ruling party, led by Sanae Takaichi, plans to allocate approximately 1 trillion yen (about $6.5 billion) annually to bolster domestic advanced semiconductor manufacturing and develop a comprehensive AI ecosystem rivaling Nvidia's full-stack capabilities. This ambitious initiative signals Japan's intent to reclaim its former dominance in chip production and emerge as an AI superpower on par with China and the U.S.

Hiroshi Seki, secretary-general of the Liberal Democratic Party's semiconductor policy group, revealed that starting from the next fiscal year in April, most funding will come from regular budgets rather than supplementary budgets—a shift from Japan's recent approach. The government believes this change will ensure more stable financing without disrupting market stability.

Since 2021, Japan has earmarked around 5.7 trillion yen to revive its semiconductor and AI sectors, primarily through supplementary budgets. Seki noted, "We initially relied on extra budgets due to uncertainty, but going forward, the Ministry of Economy, Trade and Industry will prioritize regular budget allocations."

Last year's supplementary budget included 1.5 trillion yen for semiconductor and AI projects, part of former Prime Minister Yoshihide Suga's pledge to provide over 10 trillion yen in public support for these technologies. The new 1 trillion yen annual investment will contribute to this commitment.

Key beneficiaries include Rapidus Corp., Japan's answer to TSMC, which received 1.7 trillion yen to mass-produce cutting-edge 2nm chips by 2027. U.S. memory chip giant Micron Technology also secured 774.5 billion yen for its Hiroshima plant.

Japan's aggressive subsidies—covering up to 50% of construction costs—have attracted global players like TSMC, Micron, and Samsung to build fabs in the country. Its strong semiconductor equipment and materials ecosystem, featuring giants like Tokyo Electron and Shin-Etsu Chemical, further enhances its appeal.

Prime Minister Takaichi, a conservative nationalist and ally of the late Shinzo Abe, is expected to revive "Abenomics"—combining fiscal stimulus, industry support, and loose monetary policy. Markets anticipate this approach will boost Japanese stocks (particularly in AI, semiconductors, and advanced manufacturing) while weakening the yen.

However, Japan's track record of misjudging tech trends—missing the IT revolution and lagging in quantum computing, EVs, and 5G/6G—raises questions. With AI and chipmaking now deemed national security priorities globally, Japan's latest gamble aims to position it as a leader in these critical fields.