JAPAN WADES INTO THE CHIP WARS / THE WALL STREET JOURNAL

Japan Wades Into the Chip Wars

A state-backed fund’s offer for top chip-material maker JSR signals a stronger industrial-policy approach for country that was once the world’s dominant chip maker

By Jacky Wong

Japan is working to ensure leadership in significant segments of the semiconductor supply chain. PHOTO: YUICHI YAMAZAKI/AGENCE FRANCE-PRESSE/GETTY IMAGES

Tiny semiconductor chips have become the heart of great-power competition.

Governments around the world are subsidizing chip makers. But until recently the main combatants were China, the U.S. and a few smaller economies punching above their weight such as South Korea and Taiwan.

Now the world’s third-largest economy—and a formidable technological giant—is entering the fray.

Japan is acting decisively to ensure leadership in key segments of the semiconductor supply chain—an echo of an earlier era of brawny industrial policy that helped it dominate key hard technology sectors like autos and chips in the 1970s and 1980s.

State-backed fund Japan Investment Corp. has launched a $6.3 billion offer to buy semiconductor-materials manufacturer JSR, the latter confirmed Monday. 

JSR is the world’s largest maker of photoresist, a light-sensitive material that allows miniature circuits to be printed on silicon wafers.

The deal surprised markets as JSR, a profitable listed company, isn’t a typical target for JIC. 

Such state-backed funds are better known for rescuing struggling industrial giants like Japan Display and Sharp, or investing in smaller startups.

JSR shares are now up 30% this week and are trading at a 3% discount to the offer price.

JSR says the transaction would create flexibility for strategic investments. 

It approached JIC in November believing a state-backed fund could provide stable, long-term capital—and strengthen its hand in any future negotiations with other industry players. 

JSR says it plans to relist in five to seven years.

Japan is already a dominant supplier of semiconductor materials. 

Apart from photoresist, Japanese companies are the biggest makers of silicon wafers and other materials such as fluorinated polyimide, used in smartphone displays. 

Japan caused a stir when it tightened export controls on three semiconductor materials, including photoresist, to South Korea in 2019.

But while Japanese companies dominate the supply of many of these materials, the domestic industry is fragmented. 

In photoresist, for example, JSR is the market leader, but Japanese rivals such as Tokyo Ohka Kogyo and Shin-Etsu aren’t far behind. 

That is probably why JSR and JIC are talking about a bolder restructuring of the domestic industry—to concentrate resources, integrate technology and maintain Japan’s competitiveness.

Intel has ruled the market for central processing units since the 1980s. 

But rival AMD overtook Intel in market value last year, thanks in part to an expensive bet on chip design. 

The JIC-JSR deal is likely just the beginning: The two have hinted at further consolidation that could create a national champion. 

Japan is eager to revive its semiconductor fabrication industry, too—a sector that it used to dominate. 

Like other economies, it is subsidizing chip makers to build plants. 

While the country has been overtaken by Taiwan and South Korea in chip making itself, Japan still has many pockets of strength in the sector. 

More government involvement to maintain the country’s leadership seems increasingly likely.

The global chip wars are heating up—and spreading.