According to a Reuters report, the Japanese government has proposed a USD 65.1 billion (JPY 10 trillion) plan to boost the domestic chip and AI industry through subsidies and other financial support.

The plan aims to provide support totaling USD 65 billion (JPY 10 trillion) by fiscal 2030, with the goal of strengthening Japan’s control over its chip supply chain in response to potential impacts from U.S.-China trade tensions, as noted in the report.

The report indicated that Japan’s government is set to submit this plan to the next parliamentary session, and the draft includes financial support for mass production of next-generation chips, specifically targeting Rapidus and other AI chip suppliers. The report highlighted that, the government anticipates an economic impact of approximately JPY 160 trillion according to the draft.

Rapidus is scheduled to begin mass production of cutting-edge chips in Hokkaido starting in 2027, in collaboration with IBM and the Belgium-based research organization Imec, as the report pointed out.

According to the report, Japanese Prime Minister Shigeru Ishiba stated that the government would not issue deficit-covering bonds to fund the chip industry support plan. However, detailed information on how the plan will be financed has not been disclosed.

Last year, the Japanese government announced that it would allocate approximately JPY 2 trillion to boost its chip industry, as the report noted.

The latest plan is part of a comprehensive economic package anticipated for Cabinet approval on November 22, calling for a total investment of JPY 50 trillion in the chip industry from both public and private sectors over the next 10 years, according to the report from the Reuters.

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• [News] Japanese Chipmaker Rapidus to Receive EUV Machine by Year-end, Boosting Hokkaido’s Economy
• [News] Sony and Kioxia Reportedly Plan Additional Investments in Chip Foundry Rapidus

(Photo credit: Rapidus)

The Bank of Japan (BOJ) announced on October 31 that it would keep the policy rate unchanged at 0.25%, meeting market expectations. This decision marks the second consecutive meeting of rate stability following the BOJ’s rate hike in July.

In its quarterly outlook report, the BOJ forecast that core inflation for fiscal year 2024 will remain around 2.5% due to easing pressures from import prices, with a gradual decline toward 2% expected between 2025 and 2026 amid moderate wage growth.

Regarding economic growth, the BOJ stated that Japan’s GDP growth has the potential to exceed its potential growth rate (0.5-1%) under conditions of continued financial easing and modest overseas economic growth.

(Source: BOJ)

In the post-meeting press conference, BOJ Governor Kazuo Ueda remarked that, if economic and price trends evolve as anticipated, the central bank would respond by raising rates. Ueda also noted that factors contributing to market volatility, such as weak U.S. economic data, are gradually fading and that market stability has improved. While the upcoming U.S. election poses a potential risk, the BOJ would not require extended time to monitor market conditions.

Ueda’s comments reinforced his traditionally hawkish stance. According to Bloomberg, the majority of economists now believe that the probability of a rate hike in January has increased, with market expectations for a January hike rising from 19% in September to 32% in October.

 

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• Outlook for Economic Activity and Prices
• Ueda Indicates BOJ Still on Track for More Rate Hikes After Hold

Japan’s labor market continued to show tightness in September, according to data released by the Ministry of Internal Affairs and Communications and the Ministry of Health, Labour and Welfare on October 29.

The unemployment rate fell to 2.4%, down from 2.5% in the previous month, while the job-to-applicant ratio rose to 1.24 from 1.23, highlighting persistent labor shortages in the Japanese workforce.

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Japan’s largest labor union, Rengo (the Japanese Trade Union Confederation), also announced its intention to seek a 5% wage increase in next year’s negotiations, following a record 5.1% raise this year—the largest in 33 years.

This tight labor market offers a relatively positive signal for the Bank of Japan (BOJ), which has long aimed to support moderate inflation through real wage growth as part of its strategy to normalize monetary policy.

In March, the BOJ raised rates for the first time in eight years, ending its negative interest rate policy and yield curve control. In July, it raised rates again, suggesting it would consider further hikes if inflation met expectations.

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While these comments initially triggered significant market volatility, the BOJ has since clarified that it would avoid rate hikes during periods of economic instability, aiming to calm market concerns. Nevertheless, its commitment to policy normalization remains clear.

The market broadly expects the BOJ to hold rates steady in October, with further rate hikes possible in December or January.

Last week, U.S. stock market sectors experienced volatility, resulting in a slight 0.03% decline in the S&P 500 Index, ending its six-week winning streak. In the bond market, better-than-expected U.S. economic data led to increases in the yields of 2-year and 10-year U.S. Treasury bonds by 15.7 basis points to 4.107% and 4.276%, respectively, with the yield spread remaining at around 14 basis points. The U.S. Dollar Index also rose to around 104 due to market expectations that the Federal Reserve will slow down its rate-cut pace.

Key Economic Data Review for Last Week

China LPR: The People’s Bank of China announced cuts of 25 basis points to both the 1-year and 5-year Loan Prime Rates (LPR), bringing them to 3.1% and 3.6%, respectively. At the Financial Street Forum on October 18, PBOC Governor Pan Gongsheng stated that the central bank is likely to lower the 7-day reverse repo rate by 0.2% before the end of the year, depending on market liquidity. There is also room for further LPR reductions in the future.

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Canada Monetary Policy: The Bank of Canada announced a 50 basis point rate cut, bringing its benchmark rate to 3.75%. Governor Tiff Macklem said that inflationary pressures in Canada have broadly dissipated and that the central bank hopes to see stronger economic growth moving forward. He also indicated that further rate cuts could be on the horizon if the economy develops as expected, to maintain inflation targets and economic growth.

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Key Economic Data Review for This Week

U.S. Q3 GDP (10/30): U.S. retail sales over the past three months have consistently outperformed market expectations, indicating resilient consumer spending. In its October report, the IMF also raised its forecast for U.S. 2024 GDP growth to 2.8% (previously 2.6%) due to strong consumer and investment spending. According to estimates from the Atlanta Federal Reserve, Q3 U.S. GDP is expected to grow at an annualized rate of 3.31%.

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Japan Monetary Policy (10/31): In early October, newly appointed Prime Minister Shigeru Ishiba stated that Japan’s current economic environment is not suitable for a rate hike. Bank of Japan Governor Kazuo Ueda echoed this sentiment, citing market instability and concerns over a potential U.S. recession as key reasons for the Bank of Japan’s cautious approach to rate hikes. As a result, the market widely expects the Bank of Japan to keep its policy rate unchanged at 0.25%.

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U.S. October Employment Data (11/1): The U.S. services sector has continued to support domestic consumption and employment, pushing the unemployment rate down to 4.1% and nonfarm payrolls to a stronger-than-expected increase of 254,000. However, recent hurricanes and the Boeing strike may put downward pressure on the October jobs data. The market currently expects the unemployment rate to remain at 4.1%, with nonfarm payrolls likely to fall to 111,000 due to these short-term factors.

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The global semiconductor market is nearing the end of its inventory cycle. With the rise of AI-related applications, new energy vehicles, 5G, high-performance computing, and other emerging sectors, industry experts estimate that the global semiconductor industry could reach a valuation of $1 trillion by around 2030.

Recently, new signals have emerged from various regions globally, including China, South Korea, and Japan. Based on the changing data, the growth in different sectors reflects shifts in supply and demand, indicating a widespread recovery trend in the semiconductor industry.

South Korea: Memory Chip Exports Surge by 60.7% YoY

On October 14, local time, data from South Korea’s Ministry of Science and ICT showed that boosted by record semiconductor sales, South Korea’s ICT (Information and Communication Technology) exports in September 2024 increased by 24% year-on-year to 22.36 billion USD(about 160 billion RMB), marking the 11th consecutive month of growth and the second-highest monthly figure on record.

In the semiconductor sector, South Korea’s semiconductor exports amounted to 13.63 billion USD (about 96.5 billion RMB) in September 2024, a historical high, with a 36.3% year-on-year increase.

Notably, memory chip exports surged 60.7% year-on-year to 8.72 billion USD, a nearly 20% increase compared to the previous month. System semiconductor exports rose 5.2% year-on-year to 4.37 billion USD. The Ministry highlighted that the demand for high-bandwidth memory (HBM) and other high-value-added products has fueled significant growth in memory semiconductor exports.

South Korea is home to two of the world’s largest memory manufacturers: Samsung Electronics and SK Hynix. According to TrendForce, Samsung and SK Hynix occupy the top two spots globally in the DRAM and NAND Flash markets, followed by Micron. Hence, South Korea’s semiconductor sector remains a focal point for the industry.

Additionally, the memory market has experienced significant fluctuations this year, with concerns about future trends.

TrendForce data indicated that before the third quarter of 2024, demand for consumer products remained weak, with AI servers driving the primary demand for memory. However, as HBM gains more market share, it is crowding out the capacity for existing DRAM products, leading suppliers to maintain certain pricing levels for contracts. Although server OEMs have maintained momentum in placing orders, smartphone brands are still cautious.

TrendForce forecasts that the growth rate of memory prices will significantly slow in the fourth quarter. Conventional DRAM prices are expected to increase by 0% to 5%, but with HBM accounting for a larger proportion of sales, the overall DRAM price is estimated to rise by 8% to 13%, marking a noticeable slowdown compared to the previous quarter.

China: Integrated Circuit Exports Grow by 22%

According to recent statistics from Chinese customs, China’s total imports and exports reached 32.33 trillion RMB in the first three quarters of 2024, up by 5.3% year-on-year. Of this, exports grew by 6.2% to 18.62 trillion RMB, and imports increased by 4.1% to 13.71 trillion RMB.

In terms of exports, China’s exports of mechanical and electrical products reached 11.03 trillion RMB in the first three quarters, an increase of 8%, accounting for 59.3% of total exports. Notably, high-end equipment exports grew by 43.4%, while exports of integrated circuits, automobiles, and household appliances rose by 22%, 22.5%, and 15.5%, respectively.

In terms of imports, China’s integrated circuit and auto parts imports grew by 13.5% and 4.6%, respectively, in the first three quarters. Consumer goods imports exceeded 1.3 trillion RMB.

Regionally, China’s trade with over 160 countries and regions has grown, indicating steady diversification. Trade with Belt and Road Initiative countries reached 15.21 trillion RMB, growing by 6.3% and accounting for 47.1% of China’s total trade. Trade with RCEP members grew by 4.5%, with ASEAN trade increasing by 9.4%. Meanwhile, trade with the EU and the U.S. grew by 0.9% and 4.2%, respectively.

Japan: Semiconductor Equipment Exports to China Surge by 61.6%

Data released by Japan’s Ministry of Finance shows that in August 2024, Japan’s semiconductor equipment exports to China surged by 61.6%, reaching 179.9 billion yen (around $1.29 billion).

The total weight of equipment exported from Japan to China in August was 6,742 tons, a 41% increase compared to the previous month. Machinery accounted for 23.2% of Japan’s total exports to China, with semiconductor equipment making up 11.9%.

These figures underscore Japan’s critical role in the global semiconductor supply chain.

Additionally, ASML, the Dutch photolithography giant, previously reported that its exports to China grew by 21% quarter-on-quarter in Q2 2024, reaching 2.3 billion euros. Earlier data showed that Asia accounted for 84% of ASML’s 2023 revenue.

(Photo credit: istock)