Identifying future manufacturing hot spots in Japan

Japan’s industries, which are exposed more to international demand than to tepid domestic demand, are often concentrated in certain cities. This makes these cities more dynamic than others, a feature masked when only looking at national data. Understanding the industrial landscape helps identify growth opportunities across various sectors, as job creation and incomes drive spending.

Aichi is home to Toyota, and it accounts for the lion’s share of the country’s auto production. US auto tariffs of 25% pose a big near-term threat to the prefecture, but we expect it will likely continue to serve as Japan’s main production hub for both auto and manufacturing in general. However, the transition towards EV remains a significant risk over the long term.

Kumamoto has grown in importance over the last several years, driven by TSMC’s investment plans. Long supply chains in the semiconductor field have attracted other players in the ecosystem, and the inflow of businesses and people present large business opportunities, further inviting investment.

Hokkaido is another potential semiconductor hot spot, with government-backed Rapidus setting up a plant there. However, there remain uncertainties over logistics, funding, and the external environment, and the prefecture’s lack of a solid manufacturing base presents a challenge.