Japan bets big on AI revival, but rural gains stay uneven

September 02, 2026 (MLN):  Japan has unveiled a ¥102tr ($640bn) investment plan aimed at establishing itself as a leader in artificial intelligence and semiconductors, with Prime Minister Sanae Takaichi seeking to extend economic growth beyond Tokyo and Osaka into the country's regional economies, a goal that has proven elusive under previous administrations.

The plan builds on years of state-backed chip investment, including support for Kioxia Holdings' expanding NAND flash memory plant in Kitakami, a small city roughly 500 kilometers north of Tokyo.

Kioxia began operations there in 2020, opened a second facility last year, and now plans to commit an additional ¥1.8tr ($11.3bn) toward a third line, backed by as much as ¥150bn in subsidies approved in 2024 for its Iwate and Mie prefecture plants, according to Bloomberg.

Daisuke Okuyama, a manager at Kitakami City Hall's commerce and industry division, said Kioxia's presence has become central to the town's economic functioning, with local manufacturers recording higher sales and restaurants seeing more footfall.

However, he cautioned that the spillover effects officials described as extensive have proven more limited in practice  wages outside Kioxia and its suppliers have barely moved, local firms struggle to compete for talent, and most high school graduates still leave for better-paying jobs elsewhere.

 He said it remains hard to say that the impact has truly trickled down.

Financial markets have responded positively to Sanae Takaichi's plan, with expectations of higher corporate profits driving the so-called "Takaichi trade" and pushing the Nikkei 225 to repeated records.

Kioxia's own shares have surged more than 2,000% over the past year, briefly making it Japan's most valuable listed company in June.

Sentiment in regional manufacturing hubs remains more guarded.

The government projects its chip-sector funding will generate ¥443tr in economic spillovers by fiscal 2040, but Kengo Tanahashi, senior economist at Nomura Securities, said Japan has not managed to fully capitalize on the AI boom compared with other countries, calling the situation frustrating.

Since 2021, Japan has allocated about ¥7.2tr toward semiconductors and AI, including more than ¥2tr for state-backed venture Rapidus.

By contrast, Taiwan Semiconductor Manufacturing Co.'s Tokyo-backed Kumamoto expansion since 2022 has drawn jobs and investment to Kyushu, with the Kyushu Financial Group estimating ¥11.2tr in regional benefits through 2031.

Waseda Business School professor Atsushi Osanai said Japan's AI investment has been too fragmented to drive large-scale change, contrasting it with South Korea, where concentrated investment around Samsung Electronics and SK Hynix has driven strike threats, major bonus payouts, and a wave of real estate and luxury spending near chip plants gains he attributed to efficiencies only concentration can deliver.

Jeongmin Seong, a partner at the McKinsey Global Institute in Tokyo, said Sanae Takaichi's success will hinge on prioritizing areas where Japan holds a competitive edge, such as robotics and energy, rather than spreading investment thin.

He said bold action could still allow Japan to write a very exciting comeback story over the next decade.

The government has designated several rural regions, including Akita prefecture, as priority investment zones, and has pledged up to $1bn to Israeli chipmaker Tower Semiconductor. Kioxia CEO Hiroo Ota said last week he hopes the government will subsidize roughly a third of the company's latest expansion.

In Kitakami, realtor Yasuhiro Ito of Fudosan Honpo Holdings said Kioxia's expansion has reshaped his business, with demand for apartments and office space rising sharply as his firm's local operations now depend almost entirely on Kioxia-related rentals.

He said the business is now fully dependent on the AI boom, adding that its prospects would suffer if the buildout falters.

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