Japan is readying a $65-billion push in microchips and artificial intelligence aimed at reclaiming its status as a global tech leader and meeting the urgent challenges of its ageing, shrinking population.
The 10-trillion-yen package, which lawmakers could approve this week, is also seen as preparation for an uncertain world as fears grow of a potential Chinese invasion of chip powerhouse Taiwan.
But analysts warn that question marks remain over worker shortages and whether Japan can generate enough electricity for energy-hungry AI data centres.
After dominating in tech hardware during the 1980s, "Japan had a quite a long period of almost just sitting back and observing a lot of this innovation, particularly when it comes to artificial intelligence", said Kelly Forbes, president of the AI Asia Pacific Institute.
"What we have seen in the last maybe two to three years is Japan really waking up to the potential" of such developments, she told AFP.
Japanese tech investor SoftBank and US computing giant Nvidia last week unveiled ambitious proposals to build an "AI grid" across the nation.
That followed a flurry of US investments earlier this year, including from Microsoft, a partner of ChatGPT-maker OpenAI.
AI-powered automation can help Japan, which has the world's second oldest population after Monaco, said Seth Hays, author of the Asia AI Policy Monitor newsletter.
"Demographically speaking, Japan's just going to be crunched on that," he said.
So "they need to utilise AI in order to get those productivity gains that keep the country going".
- Energy problem -
The new government money will bolster Japan's home-grown Rapidus project to produce next-generation semiconductors.
Tokyo has already promised up to four trillion yen in subsidies to help triple sales of domestically produced microchips by 2030.
"Semiconductors are really at the core of AI innovation," said Forbes.
Most of the world's chips are made in Taiwan -- but fears are growing of a blockade or invasion by Beijing, which claims the self-ruled island as part of its territory.
Facing pressure from customers and governments to diversify its production, Taiwanese chip giant TSMC in February opened a $8.6-billion chip factory in southern Japan, and is planning a second facility in the country for more advanced chips.
US President Joe Biden's administration is also pouring money into building chip factories on American soil, including $6.1 billion to Micron and $6.6 billion for TSMC.
Japan's investments are an attempt "to remain competitive in that space, but also... to stay prepared around this geopolitical tension that we know is growing", Forbes said.