As artificial intelligence (AI) drives demand for advanced computing, semiconductors are no longer simply an industrial sector but the core infrastructure of AI systems. This shift is changing the strategic logic of chip competition. Earlier debates focused on manufacturing capacity (i.e. who could design and fabricate the most advanced chips). These days, the more important question is how countries secure access to integrated systems that combine chips, data, computing infrastructure, and software ecosystems.
In this context, Japan’s semiconductor strategy should be understood less as an effort to restore past manufacturing dominance and more as a strategy of alliance-embedded positioning. By combining domestic industrial support with deep integration into U.S.-led regional supply networks, Japan is strengthening its role in a technology system that no single country can fully control. Its influence comes not only from selective investment in advanced fabrication but also from its dominance in critical upstream inputs such as materials, components, and manufacturing equipment.
This has direct implications for Canada. Ottawa is already part of broader allied supply-chain efforts through friend-shoring, investment screening, and critical minerals policy. The strategic question is therefore not whether Canada should participate in trusted networks, but what role it should occupy within them. Under the Canada–Japan Comprehensive Strategic Partnership, Japan’s experience points toward co-ordinated specialization: linking Canada’s strengths in critical minerals, research, and regulatory alignment with Japan’s strengths in advanced materials, equipment, and industrial co-ordination.
Japan’s structural position: from fabrication leader to upstream power
Japan’s current strategy reflects a long structural shift in its role within the semiconductor value chain. In the 1980s, Japanese firms such as NEC, Hitachi, and Toshiba supplied roughly half of the world’s semiconductors. This position declined as firms in the United States, Taiwan, and South Korea took the lead in advanced logic manufacturing, particularly after 2000.
However, Japan did not exit the industry. Instead, its capabilities became concentrated in upstream segments that remain indispensable to global production. Firms such as Shin-Etsu Chemical and SUMCO dominate silicon wafer supply, while Japanese companies lead in photoresists, specialty chemicals, and key production equipment. Companies such as Tokyo Electron and Advantest continue to anchor capabilities in manufacturing tools and testing systems.
These segments are highly concentrated and remain strategically important, allowing Japan to maintain influence despite its reduced role in leading-edge fabrication. As AI increases demand for advanced chips, upstream inputs such as materials, wafers, and manufacturing equipment become more significant. Japan’s strength in these areas does not eliminate its dependence on external partners for frontier fabrication, but it does provide a stronger foundation for its broader semiconductor strategy.
A policy shift in the AI-chip nexus
Since the early 2020s, Japan has treated semiconductors as a core economic security issue rather than simply an industrial policy concern. Government support for the industry has increased significantly, reaching roughly 0.71 per cent of GDP over a three-year period. Policymaking in this field has become more centralized. Government initiatives — including the 2021 Semiconductor Industry Revitalization Plan, the 2022 Economic Security Promotion Act, and the revised National Security Strategy — identify semiconductors as critical technologies, with the Ministry of Economy, Trade and Industry (METI) leading subsidies, investment, and industrial co-ordination.
Japan’s approach remains distinct from that of the United States, where semiconductor policy is closely tied to defence-industrial strategy, or from that of China, where civilian and military technology development are deeply integrated.
Japan has focused on supply-chain resilience, technology protection, and industrial competitiveness. This reflects Tokyo’s long-standing preference for economic security policies with strong industrial goals and more limited military framing. In practice, the priority is securing stable access to critical technologies while reducing strategic vulnerabilities.
The rise of AI makes this strategy more consequential because semiconductor competition is no longer only about fabrication capacity. AI development depends on advanced chips, high-bandwidth memory, data centres, advanced packaging, and tightly integrated software ecosystems that are concentrated in a small number of firms and locations, particularly in the United States and Taiwan. The strategic challenge is therefore not simply to build more fabs, but to secure reliable access to the broader system that enables AI development.
Japan’s response has relied on stronger state-business co-ordination rather than simple subsidies. METI has moved beyond supporting individual firms to shaping industrial structure — deciding which segments to rebuild, which foreign partners to anchor, and how domestic firms fit into trusted supply chains. The TSMC-led Japan Advanced Semiconductor Manufacturing project in Kumamoto illustrates this approach. Rather than rebuilding a fully national champion, the government used large-scale support — up to roughly C$4 billion (476 billion Japanese yen) for the first fab and C$7 billion (732 billion Japanese yen) for the second — to attract TSMC while linking production to Japanese firms such as Sony, Denso, and Toyota. This policy strengthened domestic fabrication capacity while embedding Japan more deeply in regional semiconductor networks.
The same logic applies to Rapidus, Japan’s state-backed effort to re-enter frontier logic chip production. Backed by firms including Toyota, Sony, SoftBank, NTT, NEC, Denso, and Kioxia, Rapidus functions as a public-private platform. METI has used public financing (roughly C$1 billion) to crowd in private capital and technology partnerships (C$1.4 billion). The goal is not full self-sufficiency, but selective re-entry into strategically important nodes of frontier production. Rapidus is not about scale competition with TSMC, but strategic access to frontier logic capacity.
Taken together, rather than restoring the vertically integrated model of the 1980s, Japan is using state-business co-ordination to reconnect its upstream strengths — materials, wafers, and manufacturing equipment — to the emerging AI industrial order. Its strategy is to secure a stronger and more durable role within trusted allied networks. This is less a return to past dominance than a repositioning within a system where access, resilience, and strategic centrality matter more than national control alone.
What it means for Canada
For Canada, the key takeaway from Japan is not the importance of allied supply chains — Ottawa is already committed to friend-shoring, critical minerals security, and trusted technology partnerships. The more important question is what role Canada should occupy within these networks as AI changes the structure of semiconductor competition. Canada is unlikely to compete in advanced chip fabrication, where costs are extremely high and technological leadership is concentrated in the United States, Taiwan, and South Korea. Its comparative advantage lies instead in upstream and enabling sectors: critical minerals, advanced materials, AI research, and regulatory alignment with trusted partners.
Japan’s experience shows that influence does not depend only on building fabs. It also comes from controlling chokepoints — materials, wafers, equipment, and the institutional co-ordination that links them to frontier production. For Canada, the equivalent strategy is not semiconductor self-sufficiency but co-ordinated specialization: securing indispensable roles in supply chains for semiconductors, batteries, and AI infrastructure. This means moving beyond raw resource exports toward value-added mineral processing, stronger research partnerships, and tighter integration with allied industrial strategies.
The March 2026 Canada–Japan Comprehensive Strategic Partnership (CSP) already provides the institutional basis for this deeper co-ordination. The joint roadmap explicitly prioritizes semiconductors, AI, critical minerals, batteries, and resilient supply chains, while launching a new Economic Security Dialogue and modernizing the Canada–Japan Joint Economic Committee. It also commits both governments to deepen co-operation on critical minerals, value-added processing, semiconductor partnerships, and joint R&D under the 40th anniversary framework of the Canada–Japan Agreement on Cooperation in Science and Technology. The question is how to turn this into project-level industrial co-ordination. A more concrete model would focus on three areas.
First, critical minerals: Canada should move beyond raw extraction and prioritize joint investment with Japanese firms in refining, processing, and battery-grade materials, especially for nickel, cobalt, graphite, and rare earths. This would align Canadian upstream capacity with Japan’s dependence on imported inputs and its strength in advanced manufacturing.
Second, semiconductor R&D: partnerships between Canadian AI and quantum research institutions and Japanese firms in semiconductor materials, packaging, and testing could create value beyond simple resource trade.
Third, standards and governance: the new Economic Security Dialogue should be used to co-ordinate investment screening, research security, export controls, and trusted technology standards so that both countries operate within the same strategic framework.
In this sense, the CSP should not be treated as a diplomatic upgrade alone, but as a platform for co-ordinated specialization. Japan contributes advanced materials, semiconductor equipment, and strong state-business co-ordination; Canada contributes critical minerals, research capacity, and access to North American markets. The goal is not parallel national strategies, but complementary roles within a shared AI-chip industrial system. In the AI era, semiconductor power depends less on ownership of fabs than on strategic centrality. Thus, the success of the CSP will depend on whether Canada can be a reliable participant.
• Edited by Vina Nadjibulla, Vice-President Research & Strategy, and Ted Fraser, Senior Editor, APF Canada.
