Chip spree aims to kick economy into gear

Bold effort: Kishida delivers his policy speech in parliament in Tokyo. The prime minister hopes the chip industry will take the lead in pay hikes in regional economies, adding that the government will continue to support the mass production of chips. — AP

TOKYO: Japanese Prime Minister Fumio Kishida’s ambitious four trillion yen (US$27bil) spending spree to revive the nation’s semiconductor industry also aims to help re-orient the economy back to a positive growth cycle sought by the government and central bank.

Already there’s anecdotal evidence emerging from the northern island of Hokkaido and from Kumamoto in the south that the new chip projects are starting to impact the local economies and stem the tide of people flocking to Tokyo for better jobs and schooling.

Yuto Oikawa, a realtor in Chitose, Hokkaido, can’t keep up with calls as the city transforms from a backwater to one of the nation’s hottest real estate markets thanks to the construction of a two trillion semiconductor foundry subsidised by Kishida’s chip plan.

“We are completely short-handed,” said Oikawa, 32. “It’s blown me away.”

The foundry is part of government-backed Rapidus Corp’s plan to make a giant leap in chip technology and reestablish Japan at the forefront of semiconductor expertise.

Kishida calls chips “a driving force” to help lead Japan out of its deflationary malaise of sluggish growth once and for all.

A boost to wages is seen as critical to the Bank of Japan scrapping its negative interest rate, as is widely expected in March or April, and to further increases after that.

“I hope the chip industry will take a lead on pay hikes in regional economies,” Kishida said in a video message at a chip expo in December.

“The Japanese government will continue to give its full support to investment in the mass production of chips in our country.”

The hope is that the latest chip strategy will help fill an economic void left by the legions of companies that shifted production abroad when the yen was around twice its current strength more than a decade ago.

That hollowing out of industry drained communities of spending power and employment opportunities, prompting many young people to leave.

Yet success isn’t guaranteed. The 2012 bankruptcy of Elpida Memory, a government-backed maker of DRAM memory chips, shows that an initial interventionist hand from the public sector can still end in failure.

Hideo Kumano, executive economist at Dai-Ichi Life Research Institute, warns that the global competitiveness of the chip industry means the latest strategy is far from certain of success.

“These subsidies are massive. But as financial stimulus measures, it’s possible they don’t end up paying off.”

The wave of people heading to the cities has resulted in four key urban areas surrounding Tokyo, Nagoya, Osaka and Fukuoka accounting for around 54% of Japan’s population and 60% of national output.

Between 2000 and 2020, the number of people living in Tokyo rose 16%, while the national population shrank.

The combined number of residents in Hokkaido and Kumamoto fell 7.7% during that period, while the size of their combined regional economies contracted 2.9%. — Bloomberg

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