Japan's Semiconductor Industry: Decline and Economic Challenges

Japan's semiconductor industry faces a severe decline, prompting urgent government action to attract foreign investment.

### Japan's Semiconductor Crisis and Economic Challenges: A Long-Term Decline
* 📉 The Ministry of Economy, Trade and Industry in Japan oversees industrial technology and energy conservation, similar to South Korea's Ministry of Trade, Industry and Energy, and has implemented **export regulations affecting South Korea's semiconductor industry**.
* 📊 A shocking report released in June revealed that Japan's semiconductor market share **plummeted from 50.3% in 1988 to just 10% by 2019**, largely due to U.S. tariffs and sanctions.
* 📉 In 1992, six of the top twelve semiconductor companies were Japanese, but by 2019, Japan's industry had **fallen to ninth place**, with only Renesas remaining significant amidst South Korean giants like **Samsung and SK Hynix**.
* 🔮 Projections indicate further declines in Japan's semiconductor market share by 2030, despite rising global demand driven by **advancements in electric vehicles and digitalization**.
* 🏭 The Japanese government is investing **4.76 trillion won** to attract TSMC's semiconductor factory to Kumamoto, highlighting the **urgency to secure semiconductor supplies** as the global industrial ecosystem shifts.
* 📉 Elpida, once Japan's leading DRAM company, filed for court protection in 2012 after failing to compete against **Samsung and Hynix**, marking a **significant loss for the Japanese semiconductor sector**.
* 💰 Japan's household financial assets surpassed **200 trillion yen**, yet **54% remains in cash and deposits**, reflecting a cultural reluctance to invest, compounded by a long-term economic recession and stagnant wages.
* 📉 Prime Minister Kishida's goal to **double household asset income** is viewed skeptically, as Japan's average income growth has **stagnated for decades**, leaving many citizens wary of government promises amidst ongoing economic challenges.

The Ministry of Economy, Trade and Industry is responsible for Japan's industrial technology policy and energy conservation. It plays a role similar to that of South Korea's Ministry of Trade, Industry and Energy. This ministry is also the one that implemented export regulations on key materials for semiconductors and displays to South Korea. The report released by this ministry in June of last year shocked the Japanese archipelago. Additionally, in line with the series titled Japan is Shaken by the Korea Economic Daily, analyses of the Japanese economy, which is no longer as robust as it once was, have been published. In the corner titled Response to the 17, they examined Japan's economic policies, which have been failing for 30 years. A representative example of this is semiconductors. The report that stunned Japan is an 83-page document on semiconductor strategy, and what astonished them was a single graph on page eight. As you can see, in 1988, the global market...

Japan's semiconductor market share, which accounted for 50.3%, dropped to 10% by 2019. This decline was influenced by the United States imposing anti-dumping tariffs and various trade sanctions, threatening Japan's semiconductor industry. Looking at the semiconductor company rankings in 1992, the top positions included NC in first place and Toshiba, Oki, and Hitachi among the top six, with six out of twelve being Japanese companies. In 2019, while South Korean companies like Samsung Electronics and SK Hynix ranked second and third globally, Japan's semiconductor industry managed only to secure the ninth position, with only one company, Renesas, remaining relevant. This paints a picture of Japan's current situation, and the shock for the Japanese people came from the outlook following 2019. As you can see, the projection for Japan's semiconductor market share by 2030 indicated a further decline. This is not a conspiracy theory; it is an estimate from the department responsible for industrial technology policy in the Japanese government. With advancements in electric vehicles and digitalization, the demand for semiconductors is expected to grow.

The semiconductor shortage has been continuing for two years, and it's evident that even industries seemingly unrelated to semiconductors, such as automobiles and air conditioning sensors, are being affected. The U.S.-China trade dispute and the aftermath of Russia's invasion of Ukraine have contributed to a global economy where the U.S. and Europe are vying for dominance among major powers, while countries like India and Brazil are forming a neutral bloc. Semiconductors are emerging as strategic materials directly linked to national security. Japan, which has manufacturing industries like automobiles and electronics as its mainstay, is hastily securing semiconductor supplies. This urgency arises because the globalized industrial ecosystem, which relied on exporting semiconductor materials and equipment while importing finished products, is collapsing. This is the reason why the Japanese government has decided to attract TSMC's semiconductor factory in Kumamoto Prefecture, committing to support half of the investment cost, amounting to 4.76 trillion won.

In 1992, I mentioned that six out of the world's top ten semiconductor companies were Japanese. Where have these companies gone now? Why did the Japanese government spend 5 trillion yen to attract foreign semiconductor companies? From Japan's perspective, this is undoubtedly a painful situation. Let's take a look at the developments over the past ten years. On February 27, 2011, the world’s leading DRAM semiconductor company, Elpida, filed for court protection in the Tokyo District Court. Elpida was formed by merging the semiconductor divisions of two companies, NEC and Oki Electric, and was considered Japan's version of the semiconductor Avengers. At one point, Elpida achieved a 20% market share, ranking as the second largest in the world. However, in the 2000s, it lost the competitive chicken game against Samsung Electronics and Hynix, leading to a downward trajectory. In 2012, it filed for court protection.

Elpida, after merging with the American company Micron Technology, has left no Japanese DRAM specialists in Korea. Even with the last deal remaining in Japan, Elpida faced a loss of over 200 billion yen for two consecutive years, from 2008 to 2010. In an attempt to save the company, the Japanese government and creditors provided 110 billion yen in 2009. However, as the maturity date approached at the end of 2011, they refused to extend the loan, indicating they wanted to recover their debts. By the end of 2011, Elpida's debt had increased to 2.9 trillion yen, which was 1.3 times its equity, leading to the conclusion that there was no possibility of recovery. Starting from the end of 2010, DRAM prices plummeted, and the value of the yen skyrocketed, resulting in Elpida posting losses for five consecutive quarters. Additionally, they were completely outmatched by Samsung Electronics and SK Hynix in the competitive market.

The decision of the Japanese government to halt support does not seem incorrect. After all, one cannot keep pouring water into a bottomless bucket. However, do you know what happened in 2012, the year Elpida applied for court protection? It was the year the smartphone era began. The demand for DRAM skyrocketed, and Samsung Electronics and Hynix experienced remarkable growth. Smartphones consume a significant amount of this technology. If the Japanese government had hoped for just one more year of good prospects, the landscape of the global semiconductor market would have completely changed. Even now, the victims of the Korean War are lamenting the situation. Wakahashi, a researcher at Tokyo Institute of Technology, recalls the trade friction between the U.S. and Japan, which caused the Japanese government to continue its policy support. He mentioned that they failed to adequately grasp the trends in DRAM products, leading to insufficient financial support.

지적을 했습니다. 자국 산업에 대한 보조금 때문에 1980년대 미국에서 미 본사를 해머로 뚫어 부시고 했던 장면을 기억하시나요? 그때 1980년대 밀 무역 마찰이 일어났고, 일본이 여러 보조금을 끊어서 마지막 남은 D램 업체를 고사시키는 상황이었습니다. 10년 전, 1조 원을 아끼려고 자국 반도체 회사를 죽인 일본 정부가 이제 와서 남의 나라 반도체 공장을 일본으로 유치해달라며 4조 5000억 원을 쏟아붓는 아이러니한 상황이 벌어졌습니다. 일본 정부는 최첨단 반도체 공장을 일본에 유치했다고 홍보하고 있습니다. 그런데 TSMC 구마모토 공장에서는 22에서 28 나노미터 반도체를 주로 생산합니다. TSMC가 미국에 건설한 공장에서는 정말 최첨단 제품인 3 나노미터 반도체를 생산할 전망입니다. 미옥의 제시문의 스타 칼럼니스트인 나카야마 나츠 씨는

This 10-nanometer technology is a decade-old technology, and there are criticisms that it won't improve Japan's semiconductor market share in products from TSMC. From Japan's perspective, another issue is that Elpida's competitor, Hynix, managed to survive thanks to continuous support from the South Korean government and creditors, even during the long DMC King game. In 2004, Elpida had a similar scale to SK Hynix, whose market capitalization has now increased 17 times. In South Korea, the government recently made a complete revision of the nuclear phase-out policy that had been pushed for the past five years, revealing various issues. Even though there have been attempts to revive the semiconductor industry after a decade of setbacks, it is not an easy task. The problem lies in the mindset of the ecosystem's main players. Most importantly, the significant reduction of skilled personnel to two-thirds of the previous level is seen as a serious challenge. Even if we shout for semiconductor revival...

Ultimately, there must be people involved. According to the Ministry of Internal Affairs and Communications, the manufacturing of electronic circuits for electronic component devices, which refers to the semiconductor industry, has seen a decline in the number of workers aged 25 to 34 from 380,000 in 2010 to 240,000 last year. The Japan Electronics and Information Technology Industries Association projected that in the next few years, there will be a shortage of veteran engineers who are knowledgeable about the establishment and operation of semiconductor factories. The Japanese government has also acknowledged its previous failures. Prime Minister Fumio Kishida pointed out that while countries like South Korea, China, and Taiwan have actively nurtured their companies, Japan has reduced support for its own businesses, which he views as a cause of the semiconductor industry's decline. The Ministry of Economy, Trade, and Industry has admitted multiple times in the National Assembly that it has not implemented appropriate and sufficient policies, failing to keep pace with global semiconductor industry trends. Will the Japanese government change its approach moving forward?

This is the reason why Japanese experts are worried about the future of their country. There was a significant event on the 5th, during which Fumio Kishida, the Prime Minister of Japan, visited the UK. In a speech held at London's financial district, he declared that he would double household asset income by encouraging families to save their financial assets and invest them. His plan is to increase tax benefits for individual investors, aiming to guide the cash and deposits currently held by households into the stock market.

Last year, Japan's household financial assets surpassed 200 trillion yen, which is approximately 2 quadrillion won in our currency. However, Japanese people hold 54% of their financial assets, or about 120 trillion yen, in cash and deposits. The proportion of stocks is only 10%. This stands in stark contrast to Americans, who hold most of their financial assets in stocks, with cash comprising just 10%. The asset income that the Prime Minister mentioned is...

The income I earn does not come from my salary; it comes from interest on savings, dividends from stocks, and rental income from real estate. However, according to the Ministry of Health, Labor and Welfare's Basic Survey on National Life, the average income of the top three wealthiest families in Japan was only about 154,000 yen in 2018. As I just explained, most Japanese people have their savings in deposits, and the interest rates on these deposits are very low. Since 2016, Japan has implemented a negative interest rate policy. This is why Prime Minister Kishida's goal of doubling asset income is considered to be almost meaningless. The average income was reduced to 32 square meters. While the essence of the statement is to change one’s investment approach to be more aggressive, this is not a new idea; it dates back to 2003, over 20 years ago, when the Financial Services Agency promoted the slogan From Savings to Investment in Japan.

The government has been repeating the same announcement for 20 years. Some say that the Prime Minister will increase charitable income from three financial centers to 32, which is a ridiculous declaration because it was originally not charitable income but rather an increase from two. Last September, when the Prime Minister ran in the election for the sister city council, he promised not charitable income but to double Japan's total income, which has been stagnant for thirty years. In that election, he campaigned on the promise of doubling income in the Reiwa era and won, subsequently taking office as Japan's Prime Minister in October. As can be inferred from the term Reiwa, the original pledge to double Japan's income comes from a different source. The politician the Prime Minister respects is Ikeda Hayato, the founder of the Kōchikai, who was the first to propose the goal of doubling income.

Ikeda initially set a goal to double Japan's gross national product, which was ranked 13th at the time, to 26 trillion yen in just ten years. Contrary to expectations, Japan's income doubled in only four years. This remarkable growth of 9.1% annually in the Japanese economy from 1956 was due to the high economic growth period. However, unlike Prime Minister Ikeda's vision, Japan has been suffering from a long-term recession for 30 years since the bubble economy burst in 1989. Japan's potential growth rate has been nearly 0% for almost a decade. From 1989 to 2020, Japan's average nominal economic growth was only 0.9%. If the economic growth rate from the past 30 years continues, it would take 77 years for Japan's GDP, which was 539 trillion yen at the end of 2020, to double. Even within the ruling Liberal Democratic Party, this goal is considered unrealistic.

The reason for the pessimism surrounding the goals is clear. After taking office, Prime Minister Kishida did not mention the goal of doubling income even once during the important National Assembly election campaign held at the end of October. Following the Liberal Democratic Party (LDP) presidential election, Prime Minister Kishida announced a new goal six months later: instead of the current income of $41,113, he aims to provide a charity income of 15.8 trillion yen. The government's policies seem inconsistent and fail to instill confidence, leading to criticism that they are damaging Japan's economy. In January 2015, then Deputy Prime Minister Taro Aso bluntly criticized companies, likening them to hoarders. He pointed out that companies are making huge profits but are stingy with wage increases and capital investments, which has drawn criticism regarding their internal reserves and the negative impact on Japanese politics.

The situation has not changed even after several years. Junichi Shimizu pointed out during last October's press conference that the company's internal reserves are at an unprecedented level. Internal reserves refer to the funds that a company accumulates from the profits it earns each year. The backdrop of the political sphere in Japan casting a critical eye on private companies is rooted in resentment. The Japanese government, through Abenomics, has lowered corporate taxes over the past decade, which has devalued the yen. There was an expectation that if companies increased their profits, it would naturally lead to wage increases and stimulate consumer spending. However, instead of increasing employment and wages, companies have increased their internal reserves to 90 trillion yen, marking a 1.6 trillion yen increase. In 2020, the internal reserves of Japanese companies reached 484 trillion yen, approximately 4.66 trillion dollars, recording the highest level for nine consecutive years. The political sphere is focused on the money...

The reason for the criticism that they only fill their own pockets after making things worse is understandable. However, there must be a reason why Japanese companies are increasing their reserves despite facing criticism. It's because there is a deep-rooted awareness that they must prepare for many uncertain situations. Companies that survived the long-term stagnation due to the collapse of the bubble economy 30 years ago have also faced challenges after that, such as the 2008 global financial crisis, the 2011 Great East Japan Earthquake, and the 2019 COVID-19 pandemic. In a situation where the management environment is hard to predict due to U.S.-China hegemonic competition and the war in Ukraine, businesses are also struggling with post-COVID conditions. Companies feel compelled to secure as much funding as possible in the face of an uncertain future. Above all, as I mentioned earlier, the Japanese government's economic policies have been inconsistent.

Not opening their wallets is not just a characteristic of businesses. In 2021, Japanese households saved 34.2% of their annual income, which is 10 percentage points higher than during the global financial crisis in 2008. Unlike in the United States and Europe, where there has been a rebound in consumption, such behavior has not occurred in Japan. This is precisely why last year, the financial assets of Japanese households first surpassed 2000 trillion yen. It has been 30 years since it broke the 1000 trillion yen mark in 1992. The sigh of relief from Japan is because the increase in household assets does not necessarily mean that Japan's economy has improved. For the Japanese economy to regain vitality, money needs to flow into the stock market and other growth areas. As I mentioned, the savings of Japanese households might still be resting quietly in banks. This is why the Japanese government has been striving for a decade to shift personal financial assets from savings to investments. However, for several decades...

For years, it has meant that efforts have had no effect. The middle-aged and older generations in Japan, who experienced the collapse of the bubble and the global financial crisis, still carry trauma related to investments. After enduring a 30-year recession, the Japanese have not expressed significant dissatisfaction because they firmly believed that, although they could not live abundantly during their working years, the country was one where they could rely solely on their pensions for retirement. In fact, Japan promised this. However, in June 2019, a report revealed that the retirement funds of couples aged 65 and older in Japan would be short by about 20 million yen, shaking this belief. While the future looks uncertain, wages have remained stagnant for thirty years, as I have explained several times. If you are managing a company, should you trust the words of the Japanese government regarding your employees?

Would you like to increase salaries and distribute investment in facilities? If you are an average Japanese person, would you prefer to keep your savings in a Japanese bank, or would you try to increase your reserves and save even a little more? So far, I have seen Tokyo and its surroundings. Thank you.

1조 아끼려 세계 2위 기업 죽이더니 5조들여 TSMC 모시는 日 정부 / 정영효의 도쿄나우

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Japan's Struggling Semiconductor Industry

Japan's Ministry of Economy, Trade and Industry is responsible for the country's industrial technology policy and energy conservation, and has implemented export regulations on key materials for semiconductors to South Korea.

The Japanese semiconductor market share has dramatically declined from 50.

3% in 1988 to 10% by 2019, with the country's top semiconductor companies losing their global dominance.

The Japanese government is now urgently trying to secure semiconductor supplies and has committed to supporting TSMC's factory investment in Kumamoto Prefecture, aiming to reverse the industry's downward trajectory.

Elpida's Struggles and the Shifting Semiconductor Landscape

Elpida's merger with Micron Technology left no Japanese DRAM specialists in Korea, and the company faced significant losses, leading to a debt of 2.

The Japanese government's decision to halt support for Elpida coincided with the booming demand for DRAM in 2012, driven by the smartphone era.

Ironically, the Japanese government, which previously cut subsidies for the semiconductor industry, is now investing heavily to attract semiconductor factories to Japan.

Japan's Struggles in the Semiconductor Industry

Japan's 10-nanometer technology is criticized for not improving its semiconductor market share, while Elpida's competitor, Hynix, thrived with government support.

The country's semiconductor workforce has significantly declined, leading to a projected shortage of veteran engineers.

Prime Minister Fumio Kishida's recent speech in the UK announced plans to double household asset income and increase tax benefits for individual investors, aiming to shift financial assets from cash to the stock market.

Japan's Stagnant Income and Unrealistic Growth Goals

The author's income comes from interest, dividends, and rental properties, while the top three wealthiest families in Japan had an average income of only 154,000 yen in 2018.

Japan's low-interest rates and negative interest rate policy since 2016 have made Prime Minister Kishida's goal of doubling asset income seem meaningless.

Despite the government's repeated efforts to promote aggressive investment since 2003, Japan has experienced a long-term recession for 30 years, with a nearly 0% potential growth rate and an average nominal economic growth of only 0.

Pessimism Surrounding Japan's Economic Goals

Prime Minister Kishida's inconsistent policies and delayed income doubling goal have led to criticism and skepticism about their effectiveness.

Japanese companies have been increasing their internal reserves to 90 trillion yen, despite making huge profits, in response to a history of economic uncertainty and crises.

The government's efforts to lower corporate taxes and stimulate wage increases have not resulted in the expected outcomes, further fueling criticism of private companies.

2% of their annual income in 2021, significantly higher than during the 2008 financial crisis.

Despite the increase in financial assets, the Japanese economy has not shown signs of improvement, with money still resting in banks.

The government's efforts to shift personal financial assets from savings to investments have had little effect, as the middle-aged and older generations remain traumatized by past economic crises.