Japan's Ministry of Economy, Trade and Industry applied for a record budget of 7.8 trillion yen to promote the implementation of “national gambling” in the semiconductor and AI strategic industries

The Zhitong Finance App learned that Japan's Ministry of Economy, Trade and Industry (METI) officially submitted a budget application for the 2027 fiscal year on Monday, totaling 7.8 trillion yen (about 49 billion US dollars), setting a record high in its history. This scale has already exceeded 5.27 trillion yen, which is the sum of the initial budget for this fiscal year and the supplementary budget for the previous year, marking an unprecedented acceleration of Japan's national strategic investment in the semiconductor and artificial intelligence sector.

The scale of this budget application is due in part to major reforms in Japan's budget preparation process. The new system allows departments to submit proposals without a spending cap in a single round of applications, with the aim of reducing reliance on temporary supplementary budgets. Ministry of Economy, Trade and Industry official Yuko Tamai said in an introduction to the media that the current application amount has already exceeded the total amount allocated to the Ministry of Economy, Trade and Industry this fiscal year.

Trillion yen invested in “strategic lifeblood”: AI, semiconductors, rare earths, and defense

This budget application is a concrete implementation of the 14-year, 370 trillion yen public-private investment plan previously announced by Prime Minister Takaichi Sanae. Of the total application amount of 7.8 trillion yen, 6.31 trillion yen was included in the “Strong and Prosperous Japan” investment framework, reflecting Takashi's core policy direction to promote economic recovery and strategic industrial upgrading.

Earlier, Takaichi had called for a total of 370 trillion yen (about 2.3 trillion US dollars) of public and private sector investment in key industries over the next 14 years. The plan was formally established through the Cabinet's “Core Policy” in July of this year, positioning 17 strategic areas, including AI, semiconductors, quantum, and next-generation energy, as the foundation to support future economic growth.

Officials from the Ministry of Economy, Trade and Industry said in an briefing to reporters that the province has yet to review past budget applications to make a judgment, but admits that the amount of this application already exceeds the sum of the funds allocated to the province in the previous two fiscal years.

AI, semiconductors, and robots received approximately 2 trillion yen, which is the largest single investment in this application. Among them, Rapidus, as Japan's “chip national team,” will receive additional funding of approximately US$94.4 billion, with the goal of mass production of 2 nm chips by 2027. Rapidus faces an extremely competitive landscape — TSMC has mass-produced 2 nm chips in 2025, and Musk is cooperating with Intel to advance the “Terafab” project.

Key minerals were guaranteed 680 billion yen to ensure a stable supply of strategic resources such as rare earths. In a context where the global rare earth supply chain is highly concentrated in China, Japan is speeding up the establishment of an autonomous and controlled resource guarantee system.

The supply capacity of naphtha received 220 billion yen to strengthen the resilience of the petrochemical industry chain. Defense and military dual-use capabilities received 180 billion yen, and will cooperate with the Ministry of Defense to enhance technical capabilities related to national defense.

These fields directly reflect the geopolitical and economic security challenges facing Japan — global powers vying for key technological hegemony, Iran's war disrupting energy supply, and the rare earth supply chain becoming the focus of the geopolitical game.

Focus: Japan's role in the global “AI chip competition”

The Ministry of Economy, Trade and Industry's budget application is a concentrated expression of Japan's upgrading in the global semiconductor and AI competition. From Rapidus' 2nm mass production plan to the commissioning of TSMC's Kumamoto plant, Japan is trying to reestablish its central position in the global semiconductor landscape.

Rapidus' mass production schedule has been clearly defined: 2 nm process production will commence in the second half of FY2027, and full mass production will be achieved in FY2028. The company plans to provide foundry services at a price of 3 million to 3.5 million yen per wafer, which is nearly 10,000 yen cheaper than TSMC's price of about 30,000 US dollars for 2 nm.

However, the road to catch up is still difficult. TSMC's 2 nm production capacity has been fully booked by customers such as Apple and Qualcomm this year. The four plants have a monthly production capacity of 60,000 tablets, and the trial production yield is over 70%. Rapidus started one step later, and the mass production scale was only about one-third that of TSMC.

Fiscal Challenge: The Debt Abyss and the Tough Game of Policy Balance

The biggest constraint facing this strategic gamble comes from Japan's severe fiscal situation. As the most indebted developed economy in the world, whether Japan can fund these investments without further deteriorating its finances remains a core question. The total amount of “general accounting” of the 2027 fiscal year budget is expected to exceed 140 trillion yen, a record high for the fourth year in a row. Among them, the “treasury bond fee” applied for by the Ministry of Finance alone was as high as 36.6 trillion yen to pay interest on treasury bonds and repay maturing principal.

The Takaichi Sanae government is also facing a problem of policy balance. Although inflation has boosted government taxes, Takaichi Sanae is also planning to reduce the food consumption tax by two years without relying on debt-financed bonds, making it extremely difficult to balance the interests of all parties. In the context of inflation driving up government taxes, how to find a balance between strategic investment, reducing the burden on people's livelihood, and fiscal discipline will be the core game focus of Japan's fiscal policy in the coming months.

The Bank of Japan is normalizing monetary policy, while the government is simultaneously introducing large-scale fiscal expansion — a divergence in both directions may put new pressure on the Japanese treasury bond market. At the same time, the market is also closely watching how the Ministry of Finance will find a balance between “active finance” and “fiscal discipline.”