Japan is making the largest shift in industrial policy of its postwar era. More than 10 trillion yen in public support for semiconductors and AI through fiscal 2030, defense spending at 2% of GDP reached two years ahead of schedule, and 20 trillion yen in bonds for the green transformation, or GX. Under the banner of economic security, the government is pushing state investment on a scale it has never attempted.

Underneath the numbers sit hard objections: wasted tax money, a second Elpida. Will this be the spark that revives Japanese industry, or will it end up as fiscal risk and little else? Here is the shape of the strategy and the companies riding it.

Three Pillars: Semiconductors, Defense, GX

Over 10 Trillion Yen for Semiconductors and AI

In December 2025, at the fourteenth meeting of its semiconductor and digital industry strategy council, the Ministry of Economy, Trade and Industry published its direction for the sector: more than 10 trillion yen in public support through fiscal 2030, intended to pull in roughly 50 trillion yen of combined public and private investment. That is about 0.71% of nominal GDP, the highest ratio among major economies. The government projects roughly 160 trillion yen in economic ripple effects over ten years.

The framing comes from the Takaichi government's idea of crisis-management investment. The global chip shortage during the pandemic hit Japan's auto industry hard, and the lesson drawn was to treat semiconductors as a strategic good under economic security policy and move first.

Rapidus: founded in 2022. Its IIM-1 pilot line in Chitose, Hokkaido, started up in April 2025, and in July that year the company confirmed electrical operation of a 2nm-generation gate-all-around transistor, at a density of 237.31 MTr/mm². Volume production is targeted for the second half of fiscal 2027, starting at 6,000 wafers a month and scaling to 25,000 within a year. A listing in fiscal 2031 is also in view.

TSMC Kumamoto: the first fab is running and the second is under construction. The government has committed roughly 1.2 trillion yen in subsidies across the two.

AI computing base: the stated goal is 60 EFLOPS of domestic AI computing capacity by fiscal 2027, backed by a plan to spend about 660 billion yen through fiscal 2030.

Defense at 2% of GDP, Two Years Early

Combining the initial and supplementary budgets, Japan's defense spending reached roughly 11 trillion yen in fiscal 2025, hitting the NATO-standard 2% of GDP two years ahead of the original plan. It is a historic turn in postwar security policy, and CSIS has described it as a major departure from the postwar era.

The ratio deserves a caveat. The government calculates against the fiscal 2022 GDP of about 560 trillion yen, the figure in place when the three security documents were drafted.

GX and 20 Trillion Yen in Transition Bonds

Under the GX Promotion Act, the government is issuing about 20 trillion yen in GX economic transition bonds, aiming to mobilize more than 150 trillion yen of public and private investment over a decade. Repayment is to come from a fossil fuel levy starting in fiscal 2028 and emissions trading from fiscal 2033.

Priority areas include next-generation nuclear, meaning fast reactors, high-temperature gas reactors and SMRs, at about 122.2 billion yen in fiscal 2026; a 1 trillion yen ten-year strategic fund for the space industry; and a 350 billion yen ten-year fund to rebuild shipbuilding.

The Niche Leaders Holding Global Share

Behind the large corporations, much of this rests on small and mid-sized firms with commanding share in narrow categories. Fourteen representative names follow. Share figures are approximate, based on company disclosures and industry estimates.

Semiconductor Equipment and Materials

Company Ticker Niche Global share
Lasertec 6920 EUV mask blank defect inspection systems close to 100%
TOWA 6315 Semiconductor molding equipment about 66%
Tri Chemical Laboratories 4369 Ultra-high-purity chemicals for chip processes dominant in some lines
Tokyo Ohka Kogyo 4186 Photoresist about 24.7%, the largest
Ferrotec 6890 Vacuum seals / thermoelectric modules about 65% / about 40%
Nomura Micro Science 6254 Ultrapure water systems among Asia's leaders
Hamamatsu Photonics 6965 Photomultiplier tubes about 90%

Power Semiconductors and New Materials

Company Ticker Niche Global share
Tamura 6768 Gallium oxide (Ga₂O₃) power devices a leader in development
Kohoku Kogyo 6524 Optical isolators for submarine cables over 50%

Defense

Company Ticker Niche Notes
Tokyo Keiki 7721 Marine gyrocompasses defense orders up sharply
Howa Machinery 6203 Domestic service rifles Japan's only rifle maker
FFRI Security 3692 Cybersecurity supplies the Defense Ministry

GX and Energy

Company Ticker Niche Notes
Kaji Technology 6391 High-pressure hydrogen compressors core to a hydrogen economy
Ise Chemicals 4107 Iodine feedstock for perovskite solar cells

How It Compares Abroad

US CHIPS Act: 52.7 billion dollars in direct grants plus an investment tax credit for chip facilities, though contract terms have been renegotiated under the Trump administration and the picture is unsettled.

China's Big Fund: 47.5 billion dollars in the third phase alone, roughly 98 billion across all three, spread from equipment and materials through legacy chips in pursuit of a self-sufficient supply chain.

Korea's K-Chips Act: tax credits of 20 to 25%, among the most generous anywhere, with a 300 trillion won investment plan for Samsung's Yongin cluster.

EU Chips Act: only 3.3 billion euros from the EU budget directly, about 0.03% of GDP against Japan's 0.71%. Few observers think the 20% global share target is reachable.

At Home, Opinion Splits

Investor optimism

The market saying is that you never sell against national policy. Some defense-linked stocks have multiplied several times over since 2023. Berkshire Hathaway's added stakes in the Japanese trading houses have also helped draw foreign money in.

Sharp criticism of Rapidus

Rapidus draws the most fire. Semiconductor analyst Takashi Yunogami has stated flat opposition to subsidies on this scale, and management consultant Kenichi Ohmae likened the plan to training on Mount Takao and then climbing Everest. Comparisons to Elpida Memory, which failed in 2012 after taking public funds, circulate constantly on social media. So does concern about skipping from 40nm straight to 2nm, a jump with no precedent.

Mixed feelings on defense

A majority supports strengthening defense in the abstract; support falls once tax increases enter the picture. Nomura Research Institute has estimated an additional burden of about 11,000 yen per person at 2% of GDP, and about 77,000 yen at 3.5%.

Resentment of the GX levy

The fossil fuel levy that will repay the GX transition bonds reaches households through electricity bills, which has earned it the label of a hidden mega tax increase.

How It Looks from Outside

Think tanks and the press

The consensus reads as ambitious but risky. The Economist called Rapidus the highest-risk, highest-return bet going. Bloomberg wrote that it would take Apollo-program precision and government backing. CSIS framed the shift as a major departure from the postwar era, while Brookings took a warmer view and analyzed it as a semiconductor renaissance. Some observers rate the ecosystem being built around Hokkaido as valuable in itself.

The risk of Chinese retaliation

China's countermeasures against Japanese export controls are among the sharpest risks here. China holds roughly 98% of global gallium supply, and alongside restrictions on gallium and germanium it has extended export controls across a wide range of dual-use items. It has signaled further measures following Prime Minister Takaichi's remarks on Taiwan.

Update, July 2026: What Moved in the First Half

Support for Rapidus stacked up. On February 27, 2026, the government, through the Information-technology Promotion Agency, injected 100 billion yen alongside 167.6 billion from private investors, making the state the largest shareholder. On April 11, industry minister Ryosei Akazawa announced a further 631.5 billion yen in research and development funding for fiscal 2026, bringing cumulative government support to 2.354 trillion yen. That month an analysis center opened at the Chitose plant and a back-end pilot line started inside Seiko Epson's Chitose site. On the customer side, Canon followed Fujitsu in commissioning design and prototyping of 2nm-generation chips, the first signs of demand from large domestic firms.

TSMC's second Kumamoto fab was upgraded to 3nm. On February 5, 2026, TSMC chairman and chief executive C.C. Wei told Prime Minister Takaichi of the change. The node moves from the original 6 to 7nm down to 3nm, and investment rises from 12.2 billion dollars to 17 billion, roughly 2.6 trillion yen. It will be the first 3nm volume production in Japan. The government had already committed up to 732 billion yen to the second fab and is weighing more.

The defense ratio slipped back to 1.9%. The Defense Ministry's share of the fiscal 2026 budget came to 9.0353 trillion yen, the first initial budget above 9 trillion, but the 10.6 trillion total including related spending works out to 1.9% against fiscal 2022 GDP. Measured against the fiscal 2026 GDP forecast of about 690 trillion yen it is 1.5%. On the revenue side, tobacco and corporate tax increases began phasing in from April 2026. The government plans to revise the three security documents by the end of 2026, with a target above 2% likely to be argued over. The United States, in its January 2026 National Defense Strategy, called on allies to raise defense spending to 5% of GDP.

What Success Depends On

Rapidus reaching volume production is the test that matters most. Jumping from 40nm to 2nm has no precedent in the industry. Success would demonstrate Japanese capability; delay would shake confidence in the whole program.

Private capital: whether private investment shows up in proportion to public support will decide the outcome. Rapidus is estimated to need about 5 trillion yen in total to reach volume production, and non-public funding is only partway there.

People: in an aging society, securing advanced talent in semiconductors, AI and defense is a structural problem.

Fiscal room: with government debt above 260% of GDP, sustaining simultaneous large-scale investment across several fields is an open question.

China: dependence on Chinese critical minerals and the exchange of countermeasures has exposed how thin the supply chain is.

Because this program is framed as security rather than as industrial policy in the ordinary sense, it draws broad political agreement more easily. The flip side is a structure in which rigorous cost-benefit scrutiny tends to come last.

What industries in your country receive large-scale government backing as national policy? We would like to hear how it has gone, and what it has cost.

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