Navigating Japan’s Semiconductor M&A Landscape:
Recent Trends and Practical Insights for Foreign Investors
Introduction
Semiconductors are a critical foundation of the modern economy, evolving from conventional electronic components into indispensable technologies supporting AI, robotics, smartphones, cloud computing, and advanced manufacturing. The global semiconductor market reached USD 630.5 billion in 2024[1] and is projected to exceed USD 1 trillion by 2030[2].
As digitalization becomes a key source of national power, countries worldwide are pursuing unprecedented policies to secure semiconductor supply chains and technology. The US, through the CHIPS and Science Act, provides subsidies, tax incentives, and export controls targeting China for sensitive semiconductors and advanced manufacturing equipment. China, Europe, and Taiwan have similarly launched large-scale strategic initiatives.
Japan has followed this trend by implementing substantial policy measures, including subsidies and other financial support to expand domestic manufacturing capacity under the 2022 Economic Security Promotion Act (“ESPA”), large-scale backing through the NEDO (New Energy and Industrial Technology Development Organization) framework, and funding from the Post-5G Fund to develop advanced semiconductor technologies for post-5G information and communication systems. Learning from past shortcomings - such as insufficient strategic support and underinvestment in R&D, which caused Japan’s global market share to fall from nearly 50% in 1990 to around 10% today - the government has shown a strong commitment to strengthening domestic supply chains and R&D. To enhance domestic capabilities and competitiveness, large-scale programs now address specific “weaknesses” in Japan’s semiconductor industry based on detailed assessments of supply chains and technology.
Given such strategic importance, foreign direct investments (“FDIs”) in Japan’s semiconductor industry are increasingly subject to close scrutiny under the Foreign Exchange and Foreign Trade Act (“FEFTA”). While such investments are not categorically prohibited – as illustrated by the acquisition of Kioxia Corporation (formerly Toshiba Memory) by a consortium led by Bain Capital – foreign investors must carefully assess the likelihood of a strict and long duration government review and any potential restrictions on post-investment activities. In doing so, they should consider factors such as their own profile, the strategic importance of the target company, the government’s interest, and the nature of the investment, including the intended level of post-investment management involvement. For investment funds, it is also critical to evaluate any exit-related restrictions, including limits on future buyers, when making investment decisions.
Osawa brings extensive experience in the Japanese government, having worked on both FEFTA policymaking and FDI screenings - reviewing over 2,000 investment cases as a regulator – along with broader semiconductor-related policy initiatives. He leverages his dual expertise in M&A and economic security to advise foreign corporations and investment funds. Together with his colleague Takamura, an M&A lawyer experienced in economic security–related cases, they provide an overview of recent trends in Japan’s semiconductor M&A market, highlight key regulatory developments, and offer practical insights for foreign investors navigating this strategic sector.
Recent Trends in Japan’s Semiconductor M&A Market
In the last three years, Japan’s semiconductor M&A market - encompassing device manufacturers, production equipment suppliers, and materials companies - demonstrated vitality, with approximately 150 domestic and inbound transactions publicly announced. These transactions were primarily driven by strategic objectives such as portfolio expansion, the realization of commercial synergies, and the acquisition of cutting-edge technologies.
A defining feature of the current market landscape is the strategic involvement of government-affiliated entities. The acquisition of JSR Corporation (JSR) by Japan Investment Corporation (JIC), a government-backed fund, for approximately USD 6 billion stands as a landmark transaction. While Japan maintains a dominant global position in the semiconductor materials market - particularly in photoresists, for which JSR, together with Tokyo Ohka Kogyo Co., Ltd., Sumitomo Chemical Company, Limited and Fujifilm Corporation, accounts for a substantial share of the global market - the domestic industry remains structurally fragmented. This fragmentation contrasts sharply with overseas competitors, which are rapidly consolidating capital, human resources, and technological capabilities through large-scale M&A activity.
Against this backdrop, JIC’s decision to privatize JSR was driven by the urgent need to fundamentally strengthen Japan’s domestic industrial competitiveness. By providing long-term capital, JIC aims to facilitate industry-wide reorganization, enhance corporate value, and serve as a catalyst for mobilizing private investment. This development underscores the government’s intention to ensure the long-term resilience of strategically important industries, maintain and enhance Japan’s international competitiveness, and further bolster economic security. Notably, following its privatization, JSR has accelerated its “selection and concentration” strategy to restructure its business portfolio. Key initiatives include the divestment of its non-core medical materials business to Tokuyama Corporation and the sale of its 3D printing subsidiary, D-MEC Co., Ltd., to Stratasys Japan Co., Ltd.
At the same time, investment in startups and deep-tech ventures has increased, as established corporations seek to secure next-generation technological capabilities. Notable examples include Japan Display Inc.’s investment in TECH EXTENSION Co., Ltd., a university spin-off specializing in 3D integration technology, and Aero X Ventures’ investment in EdgeCortix Inc., a fabless semiconductor startup focused on AI processing solutions.
In the semiconductor manufacturing equipment sector, a different structural trend can be observed. A number of small and medium-sized domestic suppliers are facing business succession challenges, prompting companies and investment funds to pursue succession-driven M&A transactions. A representative example is Shoko Chukin Capital’s acquisition of Tori Kogyo Co., Ltd., a specialist in precision sheet metal processing, in January 2025.
The market also witnessed several notable transactions involving foreign investors. For example, MBK Partners, in collaboration with US-based FormFactor Inc., acquired FICT Limited, a company that originated from Fujitsu’s printed circuit board business and is currently engaged in three core segments: high-density multilayer substrates, semiconductor-related substrates, and high-precision processing. In addition, a strategic capital alliance between Taiwan-based Chunghwa Precision Test Technology. Co., Ltd. (CHPT) and Yokowo Co., Ltd., involving a mutual investment of approximately USD 2 million, underscores the increasing use of cross-border partnerships to capture synergies in semiconductor testing solutions. Nevertheless, overall M&A activity involving foreign participants in Japan’s semiconductor sector remained relatively moderate compared to other industries. This suggests a cautious stance among foreign investors, likely influenced by Japan’s stringent foreign direct investment review framework under the FEFTA.
Recent Regulatory Developments Shaping Semiconductor M&A
1. Broadening Regulatory Scope to Cover Key Strategic Semiconductor Sectors
FDIs by foreign investors in certain regulated business sectors in Japan are generally subject to pre-investment filing requirements and subsequent governmental review with a 30-day waiting period during which the investment must not be executed. The regulated sectors are specifically listed in public notices as businesses where foreign investment could pose risks to national security or other public interests.
Among semiconductor-related sectors, integrated circuit and semiconductor memory manufacturing have long been designated as regulated industries. Following the designation of semiconductors as critical materials eligible for financial support under the ESPA, additional semiconductor-related sectors were added in 2023 to strengthen the protection of supply chains and sensitive technologies. These newly regulated sectors include: (i) the manufacture of semiconductor materials specifically designed for producing semiconductor devices or integrated circuits; (ii) the manufacture of semiconductor production equipment; (iii) the manufacture of semiconductor devices; (iv) the manufacture of electronic circuit boards; and (v) the production of helium, rare gases, phosphorus compounds, and hydrofluoric acids used in semiconductor manufacturing. Particularly in semiconductor production equipment manufacturing, prior to these additions, a number of small- and medium-sized local manufacturers were acquired by Chinese investors, which did not contribute to Japan’s economic growth or regional revitalization as would typically be expected from FDIs and sometimes involved the purchase of existing equipment or recruitment of technical staff. The 2023 regulatory additions appear to have been introduced, at least in part, to address such concerns.
In 2024, the regulatory scope was further expanded to cover the production of parts and materials used exclusively in semiconductor production equipment and to explicitly clarify that equipment such as dicing saws, wafer probers, and electron microscopes used mainly for semiconductor or integrated circuit production, measurement, or analysis are included under semiconductor production equipment. These measures continue to support semiconductor supply chain resilience and to protect strategic technologies. With the 2024 additions, the regulatory framework now appears to comprehensively cover Japan’s key strategic areas within semiconductor supply chains; however, additional sectors may be added in the future as the industry evolves to ensure continued protection.
2. Enhanced Post-Investment Commitments as Clearance Requirement
In practice, FDIs that raise national security concerns during the screening process may still obtain clearance if the foreign investor provides certain post-investment commitments to address those concerns. In such cases, regulators typically propose specific commitments, which the foreign investor is asked to confirm whether they are willing to accept.
In screening investments in the semiconductor sector, regulators typically place particular emphasis on maintaining domestic supply chains and protecting technologies in which Japan - or like-minded countries - hold a strategic or essential advantage. Even so-called legacy semiconductors are considered important for supply chain continuity. If certain target businesses are critical, regulators may require commitments to refrain from discontinuing, downsizing, or transferring those businesses. For investment funds, such commitments can be challenging, particularly when restructuring unprofitable businesses. From a technology protection perspective, commitments may include compliance with outbound technology transfer restrictions under FEFTA and/or refraining from accessing confidential technology, including ensuring that any personnel dispatched by the foreign investor does not gain access. For foreign strategic investors, such restrictions can pose practical concerns, as they may make it difficult to realize synergies from investments.
In our experience, the number of cases requiring commitments has been increasing. Previously, when a foreign investor was from allied or like-minded countries such as the US and EU member states, commitments were not always required for cases that, although somewhat sensitive, were not considered highly critical unless there were specific concerns regarding the investor’s management or investors. However, even such cases increasingly require commitments, particularly when the target’s products or technologies are strategically important and provide Japan with a critical or unique advantage. It is also important to note that obtaining clearance for these transactions can take significantly longer than investments that do not require commitments.
Furthermore, regulators historically tended to propose only the minimal commitments necessary from a national security standpoint, taking potential business restrictions into account. In that sense, the approach was basically “take it or leave it” with limited room for negotiation. However, regulators have recently been proposing much broader commitments with less regard for business implications while being more open to markups proposed by foreign investors. As a result, it has become increasingly important to carefully review any proposed commitments.
3. Publication of JFTC Guidance on Economic Security and Competition Law
On November 20, 2025, the Japan Fair Trade Commission (“JFTC”), together with the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism, published their “Casebook on Economic Security and the Competition Law” (the “Casebook”), which sets out the JFTC’s views under Japanese competition law with respect to fifteen hypothetical cases involving information exchanges, joint conduct, and business combinations undertaken from the perspective of economic security. On the same day, the JFTC also published its “Basic Views on the Application of the Competition Law to Business Initiatives Related to Economic Security”. The principles articulated in these materials are generally understandable based on the JFTC’s existing positions and do not appear to introduce particularly novel concepts. Nonetheless, these materials are of practical value to Japanese companies in that they organize the applicable competition law considerations on a case-by-case basis for each hypothetical scenario.
In the semiconductor industry, where certain areas in Japan have seen emerging oligopolistic trends and where competition law concerns have at times constrained large-scale, structural M&A transactions, the JFTC notes in the Casebook that it has, in recent years, approved several acquisitions by adopting a cross-border approach to market definitions. Examples include the acquisition of Ansys, Inc. by Synopsys, Inc. (the semiconductor design and analysis software market), the share acquisition of Siltronic AG by GlobalWafers GmbH (the silicon wafer market), and the acquisition of Maxim Integrated Products, Inc. by Analog Devices, Inc. (the general-purpose analog IC market), all of which were approved by the JFTC. By highlighting these cases, the JFTC appears to be indicating that, even if a transaction could lead to a single player holding a highly concentrated - or in some instances dominant - market share in Japan, the JFTC may apply a flexible approach to market definitions, taking into account the need to maintain and strengthen Japan’s economic security.
By applying this approach, the JFTC seems to be suggesting that competition law should not become an obstacle to business combinations that contribute to the maintenance or strengthening of Japan’s economic security. As a result, Japanese companies in the semiconductor industry may be more inclined to pursue M&A transactions aimed at industry consolidation without undue concern over competition law constraints.
Practical Insights for Foreign Investors
1. Importance of Assessing Strategic Value of Targets
For foreign investors considering investments in Japan’s semiconductor industry, it is now essential to assess the strategic value of a target company - not just its profitability but also its role in Japan’s semiconductor supply chains, its technological advantages, and its criticality. Such an assessment allows investors to anticipate the likely intensity and focus of FDI review, the types of concerns and questions regulators may raise, and potential commitments that may be required. It also enables investors, well in advance of FDI screening, to develop strategies to avoid or mitigate regulatory concerns from an economic security perspective and to ensure that their intended business plans - such as divesting unprofitable units or engaging in technology exchanges to realize synergies - do not conflict with potential regulatory expectations or commitments. Even investors from allied or like-minded countries, such as the US or EU, are subject to this scrutiny, but they may face somewhat lower hurdles than other foreign investors. Without a careful, case-by-case assessment, semiconductor investments can face mid-deal regulatory delays, which may cause exclusive negotiation periods to expire or trigger contractual penalties.
In competitive bidding situations, sellers and targets increasingly view these assessments as a key component of deal certainty, meaning that favorable financial terms alone may no longer suffice. Foreign investors, particularly those competing against Japanese bidders, must ensure they stay competitive by conducting detailed, case-by-case assessments from an economic security perspective and identifying potential regulatory concerns. They should also be prepared to demonstrate how any such concerns can be effectively addressed through explanations to regulators and/or appropriate mitigation measures.
However, conducting such detailed assessments is not straightforward. It requires not only a solid understanding of Japan’s complex FDI regulations and practices but also a thorough knowledge of intricate semiconductor supply chains - including design, front-end, and back-end processes - as well as the competitive “strengths” and “weaknesses” of Japan’s semiconductor industry.
Due diligence on any government subsidies granted to the target is also essential as substantial subsidies are often an indicator of the target’s strategic importance and can trigger more rigorous FDI review. It is therefore critical to confirm whether any subsidies have been granted based on economic security considerations, understand their purpose and background, and incorporate this understanding into the assessment of the target’s strategic importance. Investors should also evaluate whether the intended investment could conflict with any conditions of these subsidies and plan appropriate measures to address any potential issues. Under the ESPA, the subsidy conditions typically include commitment to large-scale capital investments and to continuation of production for at least ten years, appropriate responses to supply shortages, and prevention of the leakage of core technologies.
Finally, for investment funds, the assessment should extend beyond acquisition feasibility to consider the pool of potential exit candidates. Evaluating which parties could realistically acquire the target upon exit is essential. Failing to do so may leave investors with fewer exit options than expected at a later stage, limiting strategic flexibility and the potential return on investment.
2. Potential Disclosure Challenges for Investors
Due diligence in the semiconductor sector may face limitations on the disclosure of sensitive technical or supply chain information. Sellers and targets often restrict access to protect proprietary knowledge and economic security even under non-disclosure agreements. While Japanese M&A practices historically favored disclosure under confidentiality agreements, heightened concerns over economic security have led some sellers and targets to limit or refuse disclosure of certain information due to potential liabilities or the difficulty of fully recovering damages in the event of a leak. In this context, due diligence vendors may increasingly be used in strategic semiconductor sectors to manage disclosure more effectively.
These restrictions can create tension if investors request comprehensive information without considering security concerns. There have been cases where bidders or their advisors insisted on broad disclosure, which resulted in them being perceived as lacking sufficient understanding of the sensitivity of the target’s business and technologies, leading to negative evaluations in the bidding process. To avoid such issues, it is important for investors to identify the critical information necessary for their investment decisions while balancing the seller’s or target’s security concerns, clearly explaining the rationale for each request, and seeking reasonable compromises to facilitate smooth deal progression.
January 16, 2026
View original article here.
Authors: Oki Osawa (Partner), Mayuko Takamura
Endnotes
[1] WSTS (WORLD SEMICONDUCTOR TRADE STATISTICS), (2025, December 2), “An Overview of the Semiconductor Market Forecast for Fall 2025”. https://www.jeita.or.jp/japanese/stat/wsts/docs/20251202WSTS.pdf.
[2] SEAJ (Semiconductor Equipment Association of Japan), (2025, January 16), “Demand Forecast for Semiconductor and FPD Manufacturing Equipment”, https://www.seaj.or.jp/file/seajforecastjan2025_japanese_for%20press.pdf.
PwC Consulting LLC, (2025, April 30), “The Current State of the Semiconductor Industry”, https://www.pwc.com/jp/ja/knowledge/thoughtleadership/state-of-the-semicon-industry.html.