According to Nikkei Asia, Yukio Sakamoto, who once headed Japanese memory chip maker Elpida, said in an interview that Japan should consolidate the operations of domestic companies in its areas of strength and focus on investing in those companies, rather than attracting a less-than-state-of-the-art TSMC factory.

Those advantages include analog chips and discrete devices, such as power chips that help improve the energy efficiency of electric vehicles and other products, Sakamoto noted. The global share of Japanese companies in the field of analog chips is 13%-14%, and the global share in the field of discrete devices is 25%.

The report pointed out that most of these businesses are small-scale divisions under large manufacturers and face constraints in expanding R&D and production capacity. For Japan, the worry is that these advantages are disappearing.

"Chinese companies see them as potential acquisition targets," a Japanese government source said.

"If the Japanese manufacturers let those divisions consolidate into one or two companies through M&A and increase investment in them with government support, they could aim at a global share of 50%," Sakamoto said.