The long period of recession and stagnation of Japanese economy give rise to the recent transformation of the industrial cluster policy. The transformation has shifted its policy target to improve the industrial competitiveness by accelerating the formation and development of regional industrial clusters and the establishment of the special zone system. From the Great Hanshin-Awaji Earthquake and the Great East Japan Earthquake, special zone system has become the most important industrial cluster policy tool. Special zone system provides a variety of incentives such as tax breaks, funding for development projects, deregulation and simplified procedure in the industrial sectors. The purpose of this paper is to investigate the recent development and formation of the industrial cluster policy and the operational mechanism of special zone system in Japan. The major finding of analytical result is, the industrial cluster policy initiative is leading by local government and private-sector from central government. With regard to regional industrial clusters, special zone system will prioritize the development of strategic industries that will contribute to strengthening Japans industrial competitiveness, while leaving to local governments what can be done by them. Like Kobe medical industrial clusters, special zone endeavored in cooperation with industrial, academic and government organizations for accelerating development of centers for medical and pharmaceutical industry, establishment of core research centers of medical, pharmaceutical, clinical sectors in Port Island area. However, from the perspective of resources allocation, the new effort such as special zone for reconstruction is questionable.