Japan is turning its dairy hub into semicon centre to rejoin global race

The Hokkaido island, which supplies over half of Japan's dairy, is being remade into a major advanced semiconductor hub, with new factories, research centres and global players moving in

Japan is falling behind in the race for semiconductors, and it has taken cognisance of this fact. Once the frontrunner, Japan fell behind Taiwan, South Korea, and China when it came to producing and selling semiconductors to the world. Now, to race ahead, the nation is trying to turn its most cherished agricultural area into a hub for semiconductor manufacturing. Hokkaido, long known as Japan’s agricultural powerhouse, is at the centre of the country’s boldest industrial push in decades, according to a BBC report.

 

More than half of Japan’s dairy produce comes from this northernmost island, which is also famous for its ski resorts, ice-sculpture festivals and summer flower fields. But lately, cranes have started to dot the landscape as factories, research centres and universities focused on advanced technology are taking shape in the region.

 

 

For years, locals have said Hokkaido lacks major industries beyond cattle and tourism. The government is now aiming to change that by turning Hokkaido into “Hokkaido Valley”, a Japanese counterpart to Silicon Valley, and positioning the country as a contender in the $600 billion global race to supply computer chips.

 

Japan’s renewed focus on semiconductor industry revival

 

At the centre of this plan is Rapidus, a little-known company backed by the government and major Japanese corporations, including Toyota, SoftBank, and Sony, the report said. Formed through a partnership with IBM, Rapidus has raised billions to build Japan’s first cutting-edge chip foundry in decades.

 

Tokyo has invested $12 billion in the company to build a large semiconductor fabrication facility in the small city of Chitose. Rapidus CEO Atsuyoshi Koike said Chitose was chosen for its water and electricity infrastructure, lower earthquake risk and natural beauty. He oversaw a design that will cover the fab with grass to blend with the landscape.

 

A key milestone came with the delivery of an extreme ultraviolet lithography (EUV) system from ASML, enabling Rapidus to produce prototype two-nanometre (2nm) transistors earlier this year. These chips represent the cutting edge of semiconductor technology and are only matched by Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung. Intel is skipping 2nm and moving from 7nm to 1.8nm. Koike said Rapidus achieved the 2nm prototype “for the first time in Japan, and at an unprecedented speed”, crediting the IBM partnership.

 

Funding gaps and capability concerns for Japan chipmakers

 

Rapidus aims to start mass production of 2nm chips by 2027. However, the biggest hurdles will be yield and quality, areas where Taiwan and South Korea retain a substantial lead. TSMC, for instance, has succeeded in high-volume production of high-end chips, despite the technical and financial demands.

 

A 2024 report by the Asean+3 Macroeconomic Research Office, as cited by BBC, noted that current government subsidies and consortium contributions “fall short of the expected 5 trillion yen ($31.8bn) needed to start mass production.” The Center for Security and International Studies (CSIS) earlier warned that Rapidus has no experience manufacturing advanced chips and may not be able to obtain the required know-how from firms like TSMC and Samsung.

 

Finding customers could also be difficult, as Samsung and TSMC already have longstanding relationships with global buyers.

 

Billions flow into Japan’s wider chip strategy

 

And this is just a small part of the bigger picture. Recently, Japan has been committing heavily to reverse decades of decline in its semicon industry. Between 2020 and early 2024, Tokyo allocated $27 billion to the semiconductor sector, a larger commitment relative to GDP than the US made through the CHIPS Act, BBC noted. In late 2024, it announced a further $65 billion package for artificial intelligence and semiconductors.

 

Japan produced more than half of the world’s semiconductors 40 years ago, but today accounts for just over 10 per cent. Analysts cited by the report pointed to US-Japan trade tensions in the 1980s as a key turning point. The country’s demographic challenges are also weighing on its economy. A shrinking population, rising elderly share, and the large share of the national budget now allocated to social welfare have placed limits on spending on research and technology. Japan also faces a shortage of around 40,000 semiconductor engineers, the report noted.

 

Japan’s new strategies are bringing global players

 

However, the challenges aside, Japan’s broader strategy is drawing investment from global chipmakers. TSMC is producing 12-28nm chips in Kumamoto on Kyushu, helping local economic development and supplier expansion. The company began building a second plant in October last year, which is set to open by the end of 2027.

 

Domestic players are also slowly expanding with state support. Kioxia has enlarged fabs in Yokkaichi and Kitakami, and Toshiba has built one in Ishikawa. ROHM has been designated a critical-products supplier under Japan’s economic security framework.

 

US memory maker Micron will receive $3.63 billion in subsidies to expand facilities in Hiroshima, while Samsung is constructing an R&D centre in Yokohama, the BBC noted. In Hokkaido, ASML and Tokyo Electron have opened offices in Chitose following Rapidus’s move.

 

National security and strategic urgency

 

The push has not come from a purely business angle. Demand for chips is rising with the growth of artificial intelligence, while Japan’s automakers are seeking more reliable regional supply after pandemic-era disruptions. Securing chip production is increasingly being viewed as a national security priority, amid US-China trade friction and concerns over Taiwan-related geopolitical risks.