Japan announced up to $3.9 billion in fresh subsidies on Tuesday for next-generation semiconductor venture Rapidus, as it seeks to become a big player in the chip sector again.

Motivated by geopolitical concerns surrounding Taiwan, Japan is vying with the United States and Europe to attract chipmakers with massive subsidies ahead of a predicted revolution in artificial intelligence.

Rapidus involves a host of Japanese firms including Sony and Toyota, and is collaborating with US giant IBM with the aim of mass-producing two-nanometre logic chips in Japan from 2027.

The world's biggest chipmakers, including Taiwan Semiconductor Manufacturing Company (TSMC), are racing to reach full production for their 2nm-process chips, which will be installed in everything from smartphones to AI hardware.

"The Rapidus project is extremely important (as it concerns) state-of-the-art semiconductors that can influence the competitiveness of Japan's industry as a whole," Japanese economy ministry official Hidemichi Shimizu told reporters.

Tokyo has already said it is making up to four trillion yen ($26.4 billion) in state sweeteners available to help triple the sales of domestically produced chips to more than 15 trillion yen by 2030.

Rapidus, which began building its facility in the Hokkaido region in September, had already secured 330 billion yen in public money in addition to the 590 billion yen announced on Tuesday.

Tokyo is hoping to bring back the 1980s glory days when Japanese firms such as Toshiba and NEC dominated the microchip market.

Competition from South Korea and Taiwan saw Japan's global market share slump from more than 50 percent to around 10 percent.

In February, chip behemoth TSMC opened a new $8.6 billion factory on the southern Japanese island of Kyushu.

The Japanese government pledged to pay more than 40 percent of the costs for the facility. 

Lured by more Japanese government support, TSMC has announced a second facility, which will make more advanced chips, and is reportedly eyeing a third and possibly a fourth.

Others getting state funds include Japan's Kioxia and Micron of the United States.

TSMC's new facility is also part of a push by the firm to diversify production away from Taiwan.

China claims the self-ruled island as its own territory and has not ruled out taking it by force.

TSMC is building a second factory in the US state of Arizona and plans another in Germany, its first in Europe.

But despite the US government offering subsidies of $52.7 billion for the sector, the Arizona facility has been delayed and has seen disputes with unions.

The new TSMC plant in Japan took a relatively short 22 months to build, earning praise from the firm's founder Morris Chang, 92, who made a rare overseas trip to open the plant.

However, there are concerns about whether Japan, whose population is the world's second oldest and is shrinking, will have enough workers.