The Japanese government is considering financial support for Taiwan Semiconductor Manufacturing Co. to build a chip-making factory, potentially with Sony Group Corp., in the southwestern Japan prefecture of Kumamoto, sources with knowledge of the matter said Friday.

The aid for the world's largest contract chipmaker, which may be worth several billion U.S. dollars, could be included in a supplementary budget that Prime Minister Fumio Kishida aims to compile by the end of December, underscoring his sharpened focus on the economic dimensions of national security.

File photo shows a Taiwan Semiconductor Manufacturing Co. plant in Hsinchu, Taiwan. (Photo courtesy of Taiwan Semiconductor Manufacturing Co.)(Kyodo)

The bolstering of supply chains for critical components such as semiconductors has become a pressing issue. Japan has agreed with the United States to step up cooperation in the area as Washington and Beijing compete for a technological edge.

TSMC Chairman Mark Liu said at a shareholders' meeting in July that the goal was to build a plant in Japan. Sony Group already has facilities in Kumamoto for making image sensors used in smartphones.

As a joint factory is expected to benefit both, there has been speculation that the Taiwanese supplier to Apple Inc. and the Japanese conglomerate may work together.

Japan, for its part, has been calling for building a semiconductor manufacturing base in the country amid a global chip crunch, and Kumamoto is now the most likely construction site, government sources said.

If construction goes ahead, it will likely cost between 700 billion yen ($6.3 billion) and 800 billion yen, with the possibility of the government covering around half of the amount by extending financial support, the sources said.

Kishida, a former foreign minister, elected prime minister on Monday, has prioritized economic security and appointed a minister in charge of the issue.

Still, it is rare for the government to help companies, especially those from overseas, pay substantial construction costs and gaining the public's backing for spending several hundred billion yen could prove to be a hurdle.

If a TSMC plant is built, however, this may serve as an incentive for material and chip-related companies to remain in Japan.

Japan's dependence on Taiwan as a supplier of advanced semiconductors is high, and securing future supplies of the essential components is becoming increasingly critical.

Japanese chipmakers used to have a competitive edge but have lost out to Chinese and South Korean rivals over the years.

"We need to promote the construction of manufacturing bases for advanced semiconductors in Japan," Takayuki Kobayashi, minister for economic security, told reporters on Tuesday.

Japan is not alone in seeking to establish robust semiconductor supply chains, with huge sums of money earmarked by the United States, China and the European Union to invest in the key area closely tied to national security.

The administration of U.S. President Joe Biden, for instance, called for around $50 billion to develop the semiconductor industry while China has some $90 billion worth of funds dedicated for the sector.

Semiconductors are used in a variety of products, from laptops and game consoles to cars. The coronavirus pandemic has led to a spike in demand for chips.

In February, TSMC decided to establish a subsidiary for research and development in Tsukuba, Ibaraki Prefecture near Tokyo. In addition, the chip giant has unveiled a plan to invest $100 billion over the next three years to boost production capacity.

The Liberal Democratic Party, now headed by Kishida, made proposals to the government in May calling for support "comparable to other nations" for the domestic development and manufacturing of semiconductors.

The Japanese ruling party is preparing to emphasize stronger economic security as one of the main pillars of its platform heading into the Oct. 31 lower house election.

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