Japan Revives State-Led Growth Strategy, Targets 17 Strategic Sectors Including AI and Semiconductors—Can It Surpass China’s Technological Ascent?

Resurgence of state-led industrial strategy amid structural supply overhaul
Building an investment framework centered on AI and semiconductor sectors
Aiming for technological supremacy through convergence of basic science and industrial capital

Prime Minister Sanae Takaichi’s administration has declared the revival of a “state-led growth strategy.” By designating 17 strategic sectors, including artificial intelligence (AI), shipbuilding, and semiconductors, for large-scale, focused investment, Japan seeks to break free from its prolonged stagnation. After decades of relying on private-sector-driven growth following the burst of the asset bubble, Tokyo is now moving to reform its industrial structure through government-led initiatives. Experts note that Japan’s unparalleled foundation in basic science could yield results surpassing China’s “technological rise” of recent years.

Prime Minister Takaichi Appoints Ministers for Each Sector

According to the Yomiuri Shimbun on the 4th, Prime Minister Takaichi is set to announce through the newly established “Japan Growth Strategy Headquarters” the designation of 17 strategic sectors—such as shipbuilding and defense industries—for prioritized investment. The move signals Tokyo’s intent to strengthen its domestic industrial supply structure through targeted fiscal spending rather than indiscriminate expenditure. Each sector will have a designated minister, and a new growth strategy will be finalized by the summer of 2026.

The Growth Strategy Headquarters will serve as the control tower for Takaichi’s economic policy, which emphasizes a “strong economy” and “responsible proactive fiscal policy.” The Prime Minister herself will act as co-chair, while Chief Cabinet Secretary Seiji Kihara and Growth Strategy Minister Michinori Jonai will serve as deputy heads. At its first meeting, the Prime Minister is expected to highlight the goal of increasing corporate earnings and household income through supply-side enhancement—thereby “raising tax revenue without increasing tax rates.” The initiative will rest on two pillars: “crisis management investment” to strengthen supply chains in national security-related sectors and “growth investment” in advanced technologies.

The 17 strategic sectors include AI, semiconductors, digital infrastructure, and cybersecurity, along with shipbuilding—an area emphasized in the recent U.S.-Japan summit—and fusion energy, often dubbed the “dream energy.” Advanced defense technologies, including unmanned systems, will also be incorporated. The government will instruct ministers overseeing each sector to formulate multi-year budget frameworks and compile a “public-private investment roadmap” specifying targets, funding amounts, and schedules. Government procurement expansion in defense-related areas is also expected. The plan further calls for the development of specific investment promotion measures, deregulation policies, and assessments of each sector’s contribution to GDP growth, while incorporating cross-sector strategies such as startup support and talent cultivation.

Aiming to Become Asia’s AI Hub, Accelerating Semiconductor Reindustrialization

Takaichi’s growth agenda inherits the policy direction of former Prime Minister Fumio Kishida. Kishida’s “New Capitalism,” announced in 2021, evolved from the previous Ishiba administration and remains largely intact under Takaichi. Kishida, now appointed as head of the Growth Strategy Headquarters, has urged the ruling Liberal Democratic Party to uphold three policy pillars—wage increases, public-private investment, and asset-based national growth—which Takaichi reaffirmed in her policy speech and cabinet directives.

Japan’s current top priority is the AI industry. The preceding Ishiba cabinet launched the “AI Strategy Headquarters” following the enactment of the AI Act and formulated the “AI Basic Plan.” At the core of this plan lies “cloud infrastructure.” Given AI’s heavy dependence on vast data storage and processing capacity, a stable and scalable cloud environment is indispensable. To this end, the government is bolstering a “domestic cloud ecosystem” and building a national platform to support AI research and industrial applications.

This vision is underpinned by the Digital Agency’s “Government Cloud (Gov-Cloud)” initiative, which brings together global players like Amazon Web Services (AWS) and Google Cloud with domestic firms such as NEC, NTT, Fujitsu, and Sakura Internet to form a “multi-vendor public cloud architecture.” The government aims to integrate AI computation resources, datasets, and models into a unified management system, effectively positioning the “cloud for AI” as national infrastructure.

In parallel, Tokyo is moving assertively to promote AI research and development (R&D), practical deployment, and the establishment of safety and ethics standards. Agencies including the Ministry of Internal Affairs and Communications, the Ministry of Economy, Trade and Industry (METI), and the New Energy and Industrial Technology Development Organization (NEDO) are focusing on AI-based infrastructure and innovation support. This push has energized Japan’s corporate sector: telecom giant NTT unveiled its large language model (LLM) “Tsuzumi,” while Fujitsu and NEC are developing proprietary AI technologies. The government has committed to investing at least $66 billion in the AI sector by 2030, offering corporate tax relief and subsidies for data centers.

Japan has also gone all-in on semiconductor revival. Following the adoption of the “Semiconductor and Digital Industry Strategy” and enactment of the “Economic Security Promotion Act,” the government has mobilized policy funding and public investment vehicles to finance large-scale projects, mergers, and industrial restructuring. The aim is to reestablish Japan’s role in the global semiconductor supply chain and diversify dependencies away from specific countries.

A leading case is Rapidus, a semiconductor venture backed by eight major Japanese corporations—including Toyota Motor, NTT, and Sony Group—with robust government support. The company has received $11.2 billion in R&D grants to achieve mass production of advanced 2-nanometer chips by 2027. Leveraging this public-private partnership, Rapidus has begun factory construction, introduced extreme ultraviolet (EUV) lithography equipment, and launched pilot wafer production this July.

Tokyo continues to tighten its support. Last November, the government announced the “AI and Semiconductor Industrial Infrastructure Reinforcement Framework,” pledging over $66 billion in public funds for AI and semiconductor development by 2030 and projecting a total of $330 billion in public-private investment over the next decade. In April, the House of Councillors revised laws to enable the Information-Technology Promotion Agency (IPA) to provide capital injections, in-kind contributions, and loan guarantees to semiconductor manufacturers.

The Power of Japan’s Basic Science, Crowned with Nobel Prizes

Japan’s ability to reestablish a state-driven model of technological development rests on its formidable foundation in basic science. The country boasts 31 Nobel laureates—27 of them in scientific fields—compared with two from South Korea, a testament to Japan’s scientific depth.

Japan’s reliance on science and technology as national pillars dates back to the postwar era. The Science and Technology Agency was launched in 1956, and by the 1980s, Japan had begun investing heavily in fundamental research. In 1995, the government enacted the Science and Technology Basic Act, defining scientific advancement as a national responsibility. Since then, five-year development plans have been implemented, beginning with $126 billion in the first term and exceeding $148 billion in subsequent cycles. These sustained investments yielded tangible results: since the 2000s, Japan has produced a wave of Nobel laureates in natural sciences—20 of 25 awardees in physics, chemistry, and physiology/medicine received the prize after 2000—ranking second only to the United States.

Analysts trace Japan’s scientific edge to its historical tradition of rapidly assimilating foreign knowledge. The Sengan-en Garden in Kagoshima symbolizes this origin. Lord Nariakira Shimazu of the Satsuma Domain pioneered modern experiments there, constructing Japan’s first reverberatory furnace to forge high-grade steel for steamships and cannons—cutting-edge weapons that revolutionized warfare in East Asia. Hailed as an enlightened ruler, Shimazu’s clan earned reverence comparable to the Medici family for its patronage of science and craftsmanship.

Nagasaki’s Dejima district offers another clue. For 218 years, the Netherlands maintained exclusive trade with Japan, transmitting Western knowledge that gave rise to Rangaku (Dutch Learning), which opened the door to Western medicine, astronomy, chemistry, and geography. Rather than fearing foreign ideas, Japanese scholars approached them with curiosity. The Iwakura Mission of the Meiji government institutionalized this spirit of inquiry, dispatching over a hundred envoys to the United States and twelve European nations to study parliamentary systems, education, railways, communications, and banking. Japan’s path to industrialization began there, rooted in firsthand observation of the modern West.

A societal reverence for basic science also played a vital role. Korean potters like Sim Su-gwan, brought to Japan during the Imjin War, settled there permanently because they were treated as valued artisans—unlike in Korea, where they were marginalized. This respect for craftsmanship underpins Japan’s enduring network of centuries-old small and medium enterprises. Koichi Tanaka, who won the 2002 Nobel Prize in Chemistry, exemplifies this ethos: a humble engineer at Shimadzu Corporation, a mid-sized firm descended from the Shimazu experimental tradition at Sengan-en, he achieved global acclaim through perseverance and recognition of skill. The continuum of time, respect for scholarship, and devotion to mastery has evolved into Japan’s modern engine of technological innovation.