The world's biggest contract chipmaker is mulling an expansion in Japan.

Taiwan Semiconductor Manufacturing Co. is considering building a chip fab in Kumamoto Prefecture, western Japan, near a Sony factory complex.

Citing four sources, Nikkei Asia says that TSMC is evaluating the site and an incentive package from the state.

"TSMC is considering a proposal by the Japanese government to build an advanced chip factory in Japan, though it has not yet fully committed and finalized [the plan]," one of the sources said.

If it went ahead, it would be the company's first production hub in Japan, which accounted for 4.7 percent of TSMC's revenue in 2020.

Sony would be one of the new site's major customers, as its image sensor and microcontroller business booms. But it would not have a stake in the plant, which is expected to be able to produce 28nm and 16nm chips. Earlier this month, the Japanese government approved a $338 million chip research project where TSMC will develop new chip technology in the country.

The move would be a shift for TSMC, which has traditionally kept most of its research and production in its homeland.

But with the global chip shortage, rising US-China tensions, and concerns over being cut off from the technology of the modern age, governments are competing to offer huge incentives to TSMC to build in their countries.

The company is developing a $12bn+ site in Arizona, expanding its Chinese site, and considering opening a plant in the EU.

At the same time, it is pumping tens of billions into its Taiwanese fabs, with a total of $100bn expected to be spent worldwide over three years.