Japan plans 300% surge in AI and semiconductor funding

Japan’s government, through the Ministry of Economy, Trade and Industry (METI), has revealed plans to nearly quadruple its budgeted support for cutting-edge semiconductors and artificial intelligence development in the upcoming fiscal year 2026 budget, which begins in April 2026. 

The recently announced plans by Japan’s industry ministry will see its budgeted support for cutting-edge semiconductors and artificial intelligence development increase to about ¥1.23 trillion ($7.9 billion) for the fiscal year starting in April.

The overall METI budget has risen by almost 50% from the previous year, largely due to the jump in chips and AI spending. Prime Minister Sanae Takaichi’s Cabinet has signed off on it; however, there are still plans to debate the government’s initial budget plan in parliament in the new year.

Japan quadruples AI spending plans for the upcoming fiscal year

Japan is paying more attention to its chips and AI spending in a bid to strengthen its capacities in frontier technology so it can catch up with the U.S. and China. Both countries have remained on tense terms even though they are no longer lobbing tariffs at each other, and Japan has been trying to secure better supply chain access for key technologies.

In the upcoming fiscal year, Japan’s ministry will also reportedly work to secure most of the additional funding for chips and AI in regular budgets from the onset. In the past, the ministry used a more ad-hoc approach, funding it through supplementary budgets drafted later in the year. The move is expected to provide more stable funding to the sectors.

Of the total amount set aside for semiconductor and AI development, ¥150 billion has been earmarked for state-backed chip venture Rapidus, bringing the cumulative government investment in the venture to ¥250 billion. 

For AI, ¥387.3 billion will go towards the development of domestic foundation AI models, strengthening data infrastructure and “physical AI” where AI controls robots and machinery.

In the broader budget, ¥5 billion will go towards securing key minerals, including rare earths, while ¥122 billion has been earmarked for decarbonization and the development of so-called next-generation nuclear power plants.

About ¥1.78 trillion of special bonds will also be issued to aid the state-backed Nippon Export and Investment Insurance to support Japanese investment into the U.S. as part of both countries’ trade agreement.

Japan’s fiscal stimulus package expected to drive growth next year

The revelation of plans to increase the METI budget for AI and semiconductors comes after Japan’s government revised its economic forecast for the upcoming fiscal year on projections that growth will accelerate in the following year, as reported by Cryptopolitan. 

This claim is based on the view that its massive stimulus package will boost consumption and capital expenditure. The stimulus package was compiled by the administration in November and funded by a supplementary budget for the current fiscal year that focused on cushioning the blow to households from rising living costs.

It was worth about ¥21.3 trillion ($136.7 billion) and included payouts to families with children, subsidies to cut utility bills, and fiscal spending to promote investment in areas such as infrastructure, artificial intelligence and semiconductor chips.

As a result of the package, the latest projections approved by the cabinet see Japan’s economy expand 1.1% in the current fiscal year, up from 0.7% growth estimated in August due to the smaller-than-expected hit from U.S. tariffs.

Growth is also expected to accelerate to 1.3% in fiscal 2026 as consumption and capital expenditure are encouraged by the stimulus offsetting soft overseas demand, according to the projections.

As for consumption, the government expects it to rise 1.3% next fiscal year, while capital expenditure may likely increase 2.8% in fiscal 2026, faster than an estimated 1.9% rise for the current fiscal year. 

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