Korea’s central bank warns of Japan’s chip and battery chase

The Bank of Korea in Seoul [Photo by Joint Press Corps]

South Korea’s central bank stated on Sunday that Korea should enhance its technological competitiveness by increasing research and development (R&D) and investments in response to Japan’s recent proactive move to expand semiconductors and batteries spending.

The Bank of Korea (BOK) made the statement in a report titled “Current Status and Implications of Japan‘s Investment Recovery,” citing the growth in investment as one of the reasons behind Japan’s recent economic recovery. The report specifically highlighted Japan’s increasing investments in the semiconductor and battery industries, where the country‘s market share has been declining. Following the automotive semiconductor shortage in Japan in 2021, the Japanese government has been working hard to increase self-sufficiency in semiconductors and batteries and strengthen supply chains to prevent a similar crisis.

According to the report, Japan’s semiconductor investments are being made to increase its domestic production of general-purpose semiconductors aqnd strengthen its manufacturing capabilities for next-generation semiconductors. Japan has attracted general-purpose semiconductor makers such as Taiwan’s Taiwan Semiconductor Manufacturing Co. (TSMC) and the U.S.’ Western Digital Technologies Inc. to invest in facilities in the country. The country has also established a chip venture, Rapidus Corp. with the support of eight major Japanese companies.

In the battery sector, Japan is pursuing the “Battery Industry Strategy,” aiming to increase its global share of battery production capacity by 2030. Japanese private companies, including Toyota Motor Corp., are responding by investing 400 billion yen ($2.89 billion) to expand its battery production capacity in the country.

“If Japan’s investments in semiconductors and batteries gain momentum, global competition in our key sectors will become even more intense,” said the BOK in the report, emphasizing the need for Korea to strengthen its technological competitiveness by expanding R&D and investments.

On another note, the BOK warned that the recent sluggish U.S. commercial real estate market could be a source of concern for small-and medium-sized banks. U.S. commercial real estate prices have dropped by 12.1 percent from their peak due to the work-from-home trend and the impact of global monetary tightening. U.S. small and mid-sized banks have a high proportion of commercial real estate loans.

The BOK, however, noted that there is little likelihood of the problem escalating into a systemic risk as the scale of commercial real estate is smaller than that of residential real estate and the linkage between financial institutions in related loans is low.