Japan is rapidly evolving into a leader in physical AI, propelled by urgent labor shortages and a shrinking workforce. This shift is seeing increased deployment of AI-powered robots across various sectors, including factories and logistics facilities, making automation a crucial strategy for maintaining productivity.
In March 2026, Japan’s Ministry of Economy, Trade and Industry announced ambitious plans to develop a domestic physical AI sector, targeting a 30% share of the global market by 2040. With Japanese manufacturers already commanding around 70% of the global industrial robotics market in 2022, the country is well-positioned to leverage its strengths in this emerging field.
TechCrunch delved into the motivations behind Japan’s strategic shift towards physical AI, examining how its approach stands apart from that of the U.S. and China. Investors and industry executives highlighted the potential value as this technology develops further.
Labor Shortages Catalyst for Change
Adoption of physical AI in Japan is influenced by various factors, including a cultural openness to robotics, significant labor shortages due to demographic changes, and robust industrial capabilities in mechatronics. Ro Gupta, managing director at Woven Capital, emphasized that companies view physical AI as a continuity solution to sustain operations with diminishing personnel.
Global Brain partner Hogil Doh noted that labor shortages have become the primary impetus for this shift. With Japan’s population decline continuing for the 14th consecutive year by 2024, only 59.6% of the population was of working age, raising concerns about maintaining industrial effectiveness. A survey from Reuters/Nikkei in 2024 underscored that labor shortages are indeed prompting firms to embrace AI technologies.
Salesforce Ventures’ Sho Yamanaka remarked that the urgency is now focused on survival rather than mere efficiency. He indicated that due to the shrinking working-age demographic, the adoption of physical AI is a fundamental necessity for maintaining requisite industrial and social services.
Efforts to enhance automation in manufacturing and logistics are gaining momentum. Mujin’s CEO, Issei Takino, remarked that his company’s software enables industrial robots to autonomously manage logistics activities, which is vital given the labor challenges the industry faces.
Expertise in Robotics Hardware
Japan excels in the essential components of robotics, but the transition into the AI era raises questions about how these strengths will translate. Venture capitalists in Japan point to the country’s proficiency in high-precision robotics elements like actuators and sensors as key assets. However, the U.S. and China are rapidly advancing toward fully integrated systems that combine hardware, software, and data efficiencies.
Yamanaka stressed that Japan’s expertise offers a strategic advantage in the competitive landscape, particularly at the critical interface between AI and the physical world. There is a growing priority to embed AI models within existing hardware to heighten operational effectiveness.
While China and Japan lead in hardware capabilities, Takino observed that U.S. firms excel in service-oriented development. U.S. companies often combine strong software infrastructure with high-quality hardware sourced from Asia. However, this model may not transfer seamlessly to physical AI technologies, as a deep understanding of the hardware’s properties is paramount.
WHILL, a Tokyo- and San Francisco-based startup, is leveraging Japan’s rich craftsmanship in its approach to global expansion. CEO Satoshi Sugie highlighted their comprehensive platform, integrating electric vehicles with sophisticated navigation and cloud-based management, facilitating autonomous short-distance transport while addressing local demographic trends.
Advancements from Experiments to Implementation
The Japanese government is actively investing in this shift. Under Prime Minister Sanae Takaichi, approximately $6.3 billion has been allocated to enhance AI capabilities and facilitate industrial automation. This transition is being realized as many sectors, particularly automotive, are witnessing an uptick in robot installations.
Doh highlighted a clear trend towards paid deployments by customers rather than experimental trials, coupled with reliable operation metrics and performance evaluations. In logistics, automated systems are now becoming commonplace, and robotic inspection solutions are increasingly utilized in various industrial environments.
Companies like SoftBank are pioneering applications of physical AI. By integrating vision-language models with real-time control systems, they enable robots to autonomously navigate and perform complex tasks effectively, making significant strides in the technology landscape.
In the defense sector, autonomous systems are becoming critical, and operational intelligence powered by physical AI is essential. Terra Drone CEO Toru Tokushige emphasized the importance of incorporating operational data into AI systems to ensure reliable functionality in challenging environments.
Investment trends are expanding beyond traditional hardware, as companies increasingly channel resources into orchestration software, digital twin technologies, simulation tools, and integration platforms, reflecting the evolving landscape of the industry.
Emergence of Hybrid Ecosystems
Japan’s physical AI ecosystem is distinguishing itself from conventional tech disruption models, fostering a hybrid approach. Rather than a winner-takes-all system, an ecosystem where established firms offer scalability and reliability while startups introduce innovative software and system designs is taking shape.
Major players like Toyota, Mitsubishi Electric, and Honda benefit from their manufacturing scale and customer relationships, while startups are finding their niches in areas such as orchestration software and workflow automation. Yamanaka noted the need for collaboration to strengthen collective competitiveness in robotics.
The defense sector is also seeing a shift from a focus on large corporations to more collaborative efforts with startups. According to Tokushige, larger firms concentrate on platforms and scale, while startups drive innovation in software and operations, with agility becoming a defining competitive factor.
Companies like Mujin are establishing platforms that facilitate multi-vendor automation, expediting deployment across industries. Similarly, Terra Drone is adopting this model in the development of autonomous systems, integrating AI with operational data to enhance real-world functionality at scale.
Ultimately, the sustainable value in this sector will be found with those who excel in deployment, integration, and the continuous improvement of systems, according to industry experts.