The Japanese Ministry of Economy, Trade and Industry has applied for a record budget of 7.8 trillion yen to promote the implementation of its "national-level gamble" on semiconductor and AI strategic industries.

The Ministry of Economy, Trade and Industry (METI) of Japan officially submitted its budget request for fiscal year 2027 on Monday, totaling up to 7.8 trillion yen (approximately 49 billion USD), setting a historical record. This scale has surpassed the combined initial budget and supplementary budget amounts from the previous year, which totaled 5.27 trillion yen, marking an unprecedented acceleration in Japan's national strategic investments in the semiconductor and artificial intelligence sectors. The enormous scale of this budget request is partly a result of significant reforms in Japan's budget preparation process. The new system allows departments to submit proposals without a spending cap in a single application round, aimed at reducing reliance on temporary supplementary budgets. METI official Yuko Tamai stated in a media briefing that the requested amount has already exceeded the total allocated to METI for the current fiscal year. Trillions of yen directed toward "strategic lifelines": AI, semiconductors, rare earths, and defense This budget request is a concrete implementation of Prime Minister Sanae Takaichi's previously announced 14-year, 370 trillion yen public-private investment plan. Of the 7.8 trillion yen requested, 6.31 trillion yen has been allocated under the "Strong and Prosperous Japan" investment framework, reflecting Takaichis core policy direction aimed at promoting economic recovery and strategic industrial upgrades. Previously, Takaichi had called for a total of 370 trillion yen (approximately 2.3 trillion USD) in investments from both public and private sectors over the next 14 years in key industrial sectors. The plan was formally established this July through the Cabinets "Basic Policy," identifying 17 strategic areas, including AI, semiconductors, quantum technology, and next-generation energy, as the foundation for future economic growth. Officials from METI mentioned during a briefing that the ministry had not reviewed past budget requests for judgment but acknowledged that this request exceeds the sum of allocations to the ministry over the past two fiscal years. Approximately 2 trillion yen is directed towards AI, semiconductors, and Siasun Robot & Automation, which is the largest single allocation in this request. Among them, Rapidus, as part of Japan's "Chip National Team," will receive around 94.4 billion USD in additional funding, aiming for mass production of 2-nanometer chips by 2027. Rapidus is facing immense competition; TSMC is expected to begin mass production of 2-nanometer chips in 2025, while Elon Musk is working with Intel to advance the "Terafab" project. 680 billion yen is allocated to ensure the stable supply of critical minerals, including rare earths. In the context of a global rare earth supply chain heavily reliant on China, Japan is accelerating efforts to build an autonomous resource security system. 220 billion yen is designated to bolster the supply capabilities of naphtha, aimed at enhancing the resilience of the petrochemical industry. 180 billion yen is earmarked for defense and dual-use capabilities, in collaboration with the Ministry of Defense to enhance defense-related technological capabilities. The aforementioned areas directly reflect the geopolitical and economic security challenges faced by Japancompetition among global powers for control over key technologies, disruptions in energy supply due to the Iran conflict, and the rare earth supply chain becoming a focal point of geopolitical rivalry. Focus on: Japan's role in the global "AI chip competition" This budget request from METI is a concentrated manifestation of Japan's efforts to elevate its position in the global semiconductor and AI race. From Rapidus' 2-nanometer mass production plans to the commencement of TSMC's Kumamoto plant, Japan is striving to rebuild its core position on the global semiconductor map. The timeline for Rapidus' mass production has been clearly defined: production of 2-nanometer processes is set to commence in the second half of fiscal year 2027, with full-scale production expected in fiscal year 2028. The company plans to provide foundry services at a rate of 3 to 3.5 million yen per wafer, nearly 10,000 dollars cheaper than TSMC's quoted price of around 30,000 dollars for 2-nanometer chips. However, the road to catching up remains challenging. TSMCs 2-nanometer capacity has already been fully booked this year by clients such as Apple and Qualcomm, with four factories achieving a monthly production capacity of 60,000 wafers and a trial production yield exceeding 70%. Rapidus is starting later and its mass production scale is only about one-third that of TSMC. Fiscal challenges: the abyss of debt and the difficult game of policy balancing The biggest constraint on this strategic gamble comes from Japan's severe fiscal situation. As the world's most indebted developed economy, whether Japan can fund these investments without further deteriorating its financial condition remains a core suspense. The general accounting total for the fiscal year 2027 budget is expected to exceed 140 trillion yen, marking a historical high for the fourth consecutive year. Among this, the "national debt cost" applied for by the Ministry of Finance is as high as 36.6 trillion yen, earmarked for paying interest on government bonds and repaying maturing principal. Prime Minister Takaichi's administration is also facing the challenge of policy balancing. Although inflation has boosted government revenue, Takaichi plans to reduce the food consumption tax for two years without relying on debt financing bonds, making it extremely difficult to balance various interests. Amid rising government revenues due to inflation, finding a balance between strategic investments, easing the burden on peoples livelihoods, and fiscal discipline will become the central focus of Japan's fiscal policy game in the coming months. The Bank of Japan is advancing monetary policy normalization, while the government is simultaneously launching massive fiscal expansionthis divergence in direction may place new pressure on Japan's bond market. At the same time, the market is closely monitoring how the Ministry of Finance will find a balance between "active fiscal policy" and "fiscal discipline."