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Japan's Computing Industry

Abstract

In the 1980s, Japan appeared to be winning the technology war. By 1986 its semiconductor companies held about three quarters of the world DRAM market, its consumer electronics filled living rooms worldwide, and its government had launched a ten-year, state-funded artificial intelligence program, the Fifth Generation project. Washington answered with trade sanctions. Within a decade, Japan’s computer industry had lost the DRAM lead to Korea and the PC platform to the global x86 standard, and it became a case study in how industrial policy can both build and constrain an industry.

NEC PC-9801 RX
A NEC PC-9801 RX, one of the PC-98 series that held the Japanese personal-computer market for a decade. Image: Flickr user: htomari, CC BY 2.0, via Wikimedia Commons.

The MITI Model

Japanese calculating machinery predates the ministry by decades. Ryoichi Yazu patented a pinwheel calculator, the “automatic abacus”, in January 1903 and it was built in series; Kyota Sugimoto’s 1915 patent for a typewriter that picked each Japanese character from a type tray went into production at the new Nippon Typewriter Company in 1917, and the same tray principle later served the Chinese typewriter (see Wang Yongmin and the Chinese Input Wars).

The Ministry of International Trade and Industry (MITI) coordinated industrial strategy more closely than any government agency in the United States or Europe. After World War II, MITI directed capital, licensed foreign technology, protected domestic markets from imports, and organized “research consortia” that allowed competing companies to share the costs of basic research.

In 1953 Tokyo Tsushin Kogyo, the later Sony, licensed the transistor from Western Electric (Bell Labs’ parent), and Japanese firms then improved on the technology step by step. Companies like NEC, Fujitsu, Hitachi, Toshiba, and Mitsubishi Electric developed parallel capabilities across computing, telecommunications, and consumer electronics, a breadth few American companies matched.

By the early 1970s, NEC had built a complete computing stack: mainframes, minicomputers, networking equipment, and semiconductor fabrication. Fujitsu’s mainframes were largely compatible with IBM’s architecture, a deliberate strategy to sell into the IBM-installed base while avoiding the cost of software incompatibility. Hitachi went further: in June 1982 an FBI sting caught Hitachi and Mitsubishi Electric employees buying IBM trade secrets.

The DRAM Wars

The most visible confrontation between American and Japanese technology occurred in dynamic random-access memory (DRAM) chips. Memory chips are a commodity; the company that can manufacture them at lowest cost and highest yield wins. Japanese manufacturers, subsidized by MITI’s Very Large Scale Integration (VLSI) project from 1976 to 1980, invested aggressively in manufacturing process improvements and drove production costs below what American firms could sustain.

Between 1978 and 1986 the US share of the DRAM market fell from about 70% to about 20%, while Japanese companies (led by NEC, Toshiba, and Hitachi) rose from under 30% to about 75%. Intel (which had shipped the first commercial DRAM, the 1103, in 1970; the one-transistor memory cell itself was invented by IBM’s Robert Dennard in 1966 and patented in 1968), Mostek, and National Semiconductor largely left the market in the mid-1980s, unable to compete on cost. In 1985 Gordon Moore and Andy Grove took Intel out of memory and concentrated it on microprocessors, cutting roughly 7,200 jobs. The bet rested on the x86 line that IBM had chosen for the IBM PC in 1981, and the 80386 of 1985 made it pay.

The American response was political and commercial. On 2 September 1986 the US and Japan signed the Semiconductor Trade Agreement (STA), which set minimum prices for Japanese chips exported to the US. A side letter, kept confidential at first, recorded the “expectation” that foreign chipmakers’ share of the Japanese market would grow to slightly above 20% within five years; Japan never accepted it as a guarantee, and the share stood at about 13% in 1990. The agreement was controversial (it raised prices for American computer manufacturers) but it gave American chipmakers breathing room. On 17 April 1987 Ronald Reagan imposed 100% tariffs on about $300 million of Japanese goods, among them colour televisions and laptop computers, because Japan was judged not to be complying. The pressure reached even system software: in April 1989 the US Trade Representative flagged Japan’s plan to standardize the domestic TRON operating system in schools as a potential trade barrier, and Japan abandoned the plan within months (see Ken Sakamura and TRON).

Info

The VLSI project (1976–1980) is often cited as MITI’s greatest success in technology policy. Five competing companies (NEC, Fujitsu, Hitachi, Mitsubishi, Toshiba) collaborated on pre-competitive research under MITI coordination, jointly filing over 1,000 patents and narrowing the manufacturing gap with IBM. South Korea followed the same pattern, with heavier capital investment, through Samsung and the companies that became SK Hynix.

The PC-98

The machine’s own history, the clones, DOS/V and the Compaq shock are covered in NEC PC-98 and Japan’s Domestic PC.

While the global PC industry standardized around IBM’s architecture and Intel’s x86 processor, Japan developed its own: the NEC PC-98, introduced in October 1982. The PC-98 used an Intel 8086-compatible processor but defined its own hardware architecture, expansion bus, and character display system, the latter essential for rendering the thousands of kanji characters in the Japanese writing system, which required more graphical sophistication than the ASCII-focused IBM PC could handle.

NEC already held about half of the Japanese PC market at the end of 1983, and by 1991 the PC-98 had more than 60%; about 18.3 million units had shipped when production ended in 2004. A large software ecosystem developed around it: business applications, games, and productivity tools written for PC-98 hardware alone. Japan’s technology industry viewed this as a success: a domestically controlled standard insulated from American dominance.

While the global PC industry moved from 8086 to 286 to 386 to Pentium in rapid succession, each transition driven by fierce competition among hundreds of companies competing on an open standard, the PC-98 ecosystem moved more slowly. NEC had less competitive pressure to advance the platform. The software ecosystem, having invested in PC-98-specific code, resisted migration. When Windows 95 and the global x86 PC finally entered Japan in force in the mid-1990s, Japanese businesses faced a painful choice: invest in re-training and re-tooling, or stay on an aging platform. Most stayed too long.

The PC-98’s decline ended Japan’s separate domestic PC ecosystem and weakened the software industry that had grown around it. Japanese developers, trained on PC-98 architecture, were less competitive in the global Windows market. The installed base that had been a moat became a millstone.

The Fifth Generation Project

In 1982, MITI announced the Fifth Generation Computer Project (compared with the Western programmes it provoked in Dead End: Buying a Computer Industry), a ten-year program (which ultimately spent roughly ¥57 billion, about $320–400 million) to build computers that could reason, understand natural language, and draw logical inferences. The goal was to leapfrog American and European computing by building a new computational paradigm based on logic programming rather than the Von Neumann architecture.

The announcement caused panic in the United States. A DARPA-funded response program, the Strategic Computing Initiative, was launched in 1983. Britain established the Alvey Programme. Europe created ESPRIT. Within two years the Japanese project had set off government AI programmes on three continents.

The project failed to meet its objectives. Logic programming in Prolog (the core technology chosen) proved insufficient for the tasks the project hoped to accomplish: natural language understanding, knowledge representation at scale, and real-time inference. By 1992, when the project concluded, it had produced research contributions in parallel logic programming but nothing approaching the goals MITI had set. Its paradigm, symbolic AI, was already facing a revival of neural-network research, which dominated the field from the 2010s.

MITI’s industrial policy worked well when the target was known: reducing manufacturing costs, improving process yields, catching up to American standards. The Fifth Generation project showed it working poorly when the frontier itself was uncertain.

Warning

The Fifth Generation project’s failure has a direct parallel to the “AI winters” that followed the first wave of AI enthusiasm in the 1960s and 1970s. Japan bet on symbolic AI at precisely the moment when connectionist approaches were gaining traction. The lesson (that government coordination of technology bets is more valuable for catch-up than for frontier research) was learned painfully and late.

Why Japan Lost

Japan’s technology decline in the 1990s had multiple causes that reinforced each other:

The asset bubble and its aftermath. The collapse of Japan’s real estate and stock market bubble in 1989–1991 destroyed the balance sheets of the banks that funded technology investment. Japanese companies that had borrowed aggressively to invest in capacity were left with enormous debts and assets worth a fraction of their book value. The “Lost Decade” was really two lost decades of constrained investment and deflation.

The software gap. Japanese hardware manufacturing was world-class. Japanese software was not. Japan had no equivalent of Microsoft, Oracle, or Apple. Software had been treated as an appendage of hardware rather than as a standalone industry.

Keiretsu and the cost of coordination. Japanese companies operated within keiretsu, networks of cross-shareholding between companies, suppliers, and banks. These networks provided stability and patient capital but were slow to adapt to rapid market change. The American model of fast-moving, independent startups funded by venture capital was structurally foreign to the keiretsu system.

Korean and Taiwanese competition. South Korean companies (Samsung, SK Hynix, LG) followed the MITI model but with more aggressive capital investment and lower labor costs. By the mid-1990s, they had done to Japanese DRAM manufacturers what Japan had done to American ones in the 1980s: competed on cost until the Japanese firms retreated or exited. In Taiwan, TSMC’s foundry model (manufacturing chips designed by others) grew into the world’s most advanced semiconductor manufacturing.

The internet. Japan built excellent infrastructure: broadband penetration was high, and NTT DoCoMo’s i-mode mobile internet (1999) was years ahead of Western equivalents. But the major internet platforms (search, social, e-commerce) emerged as American companies that defined global standards. Internet companies in Japan (Rakuten, Mixi, and Line, the Japanese subsidiary of Korea’s Naver) achieved domestic dominance but did not export their models. The cultural dimension of Japan’s digital technology (Walkman, Tamagotchi, Pokémon, 2channel, Hatsune Miku, and the Galapagos phone phenomenon) is covered in Japan’s Digital Culture.

Japan Today

Japan remains a significant technology power. Sony makes about half of the world’s image sensors by revenue and more than half of those in smartphones. Murata, TDK, and Kyocera are among the largest makers of passive electronic components. Renesas is one of the largest suppliers of automotive microcontrollers. Nintendo survives as one of the last independent consumer gaming hardware companies.

Japan did not regain its position at the semiconductor frontier. In the 2020s its government paid to bring leading-edge manufacturing back: up to ¥476 billion in subsidies for JASM, the TSMC-majority joint venture with Sony and Denso whose Kumamoto fab opened in February 2024, and more than ¥1.7 trillion by 2025 for Rapidus, founded in 2022 by eight Japanese companies to make 2-nanometre chips in Hokkaido.

📚 Sources