Physical AI is becoming a key industrial competitive arena, with Japan’s initiatives primarily motivated by urgent needs. Faced with declining workforces and the imperative to maintain productivity, businesses are increasingly deploying robots enhanced with AI across manufacturing plants, storage facilities, and essential infrastructure.
In March 2026, Japan’s Ministry of Economy, Trade and Industry announced its goal to establish a strong domestic physical AI industry and secure 30% of the worldwide market by 2040. Japan currently leads in industrial robotics, with its manufacturers holding approximately 70% of the global market share in 2022, as reported by the ministry.
TechCrunch, drawing on discussions with investors and industry leaders, investigated the factors behind this transformation, the distinctions between Japan’s strategy and those of the U.S. and China, and potential areas of value as the technology progresses.
Impelled by Workforce Deficiencies
According to Ro Gupta, managing director at Woven Capital, Japan’s adoption is fueled by multiple elements, such as a societal readiness to embrace robotics, demographic shifts causing labor deficits, and robust industrial expertise in mechatronics and hardware supply networks.
“Physical AI is being acquired as a continuity solution: a means to sustain the operations of factories, warehouses, infrastructure, and services with a reduced workforce,” stated Hogil Doh, general partner at Global Brain. “In my observation, labor scarcity is the main impetus.”
Japan’s demographic challenges are intensifying. The population saw a decrease for the 14th consecutive year in 2024; the working-age segment constitutes only 59.6% of the total, a proportion expected to decrease by almost 15 million in the next two decades, Doh highlighted. This trend is already altering business operations: a 2024 Reuters/Nikkei poll indicated that labor scarcity is the primary catalyst for Japanese companies embracing AI.
Sho Yamanaka, a principal at Salesforce Ventures, told TechCrunch that “The impetus has moved beyond mere efficiency to industrial perseverance. Japan confronts a tangible resource limitation where vital services are unsustainable due to insufficient labor. With a declining working-age demographic, physical AI is a critical national imperative to uphold industrial benchmarks and social provisions.”
Issei Takino, CEO and co-founder of Mujin, stated that Japan is intensifying its commitment to advancing automation in manufacturing and logistics. The government has advocated for automation to tackle fundamental issues like labor deficits. Mujin, a Japanese firm, developed software enabling industrial robots to manage picking and logistics functions independently. Takino explained that Mujin’s strategy emphasizes software — specifically, robotics control platforms — which enables current hardware to operate with greater autonomy and effectiveness.
Hardware Prowess, System Vulnerability
Japan’s historical forte lies in the fundamental physical constituents of robotics. It remains uncertain if this strength will carry over into the AI age. Japanese venture capitalists note that the nation maintains its expertise in essential robotics components like actuators, sensors, and control systems, while the U.S. and China are progressing faster in creating comprehensive systems that combine hardware, software, and data.
Yamanaka asserted, “Japan’s proficiency in high-precision components – the vital physical link between AI and the tangible world – represents a strategic safeguard. Command over this interface offers a substantial competitive edge in the global supply chain. The immediate focus is to expedite system-wide optimization through profound integration of AI models with this hardware.”
Takino noted that hardware strengths are most pronounced in China and Japan, with Japan excelling specifically in robot motion control, whereas the U.S. demonstrates leadership in the service domain and market expansion. Traditionally, numerous U.S. firms capitalized on their software prowess to forge integrated enterprises— akin to Apple—by combining robust software platforms with premium hardware acquired from Asia. Nevertheless, Takino suggested that this paradigm might not entirely apply to the burgeoning realm of physical AI.
Takino stated, “In robotics, and particularly in Physical AI, a profound comprehension of hardware’s physical properties is essential. This demands not only software competencies but also highly specialized control mechanisms, which necessitate considerable development time and entail substantial failure costs.”
Satoshi Sugie, CEO of WHILL, a Tokyo- and San Francisco-based startup specializing in autonomous personal mobility vehicles, informed TechCrunch that the company is harnessing Japan’s “monozukuri,” or craftsmanship legacy, as it pursues a comprehensive, full-stack strategy for global growth. WHILL has engineered an integrated platform that merges electric vehicles, integrated sensors, navigation technologies, and cloud-powered fleet management for both short-range and autonomous conveyance. Sugie highlighted that the company utilizes both Japan and the U.S. for its developmental efforts, focusing on Japan for hardware refinement and addressing the needs of an aging populace, while employing the U.S. to expedite software innovation and trial extensive commercial frameworks.
Transitioning from Prototypes to Practical Implementation
The government is financially backing this initiative. Under Prime Minister Sanae Takaichi, Japan has pledged approximately $6.3 billion to bolster fundamental AI capabilities, foster robotics integration, and aid industrial implementation.
The transition from experimental phases to actual deployment is actively progressing. Industrial automation continues to be the most developed sector, with Japan deploying tens of thousands of robots annually, especially within the automotive industry. Doh noted that more recent applications are also starting to achieve widespread acceptance.
Doh explained, “The indicator is straightforward – customer-financed deployments as opposed to vendor-subsidized trials, dependable functioning throughout entire shifts, and quantifiable performance indicators like uptime, human involvement frequency, and productivity effects.”
Within logistics, businesses are implementing automated forklifts and warehouse solutions, concurrently, in facilities management, inspection robots are deployed in data centers and industrial locations.
Firms such as SoftBank are actively utilizing physical AI, integrating vision-language models with real-time control systems, thereby empowering robots to comprehend their surroundings and perform intricate operations independently.
Toru Tokushige, CEO of Terra Drone, informed TechCrunch that in the defense sector, where autonomous systems are becoming fundamental, competitive advantage will stem not merely from platforms but from operational intelligence fueled by physical AI. Tokushige further explained that Terra Drone is striving to enable autonomous systems to operate dependably in practical settings and bolster Japan’s defense infrastructure by merging operational data with AI.
According to investors and industry insiders, capital allocation is moving past hardware, with companies dedicating increased funds to orchestration software, digital twins, simulation instruments, and integration frameworks.
Emergence of Blended Ecosystems
Japan’s physical AI ecosystem is developing distinctively compared to conventional tech disruption paradigms. Instead of a winner-takes-all scenario, industry players anticipate a blended approach, where established enterprises offer scale and dependability, while startups spearhead innovation in software and system architecture.
Major established firms, such as Toyota Motor Corporation, Mitsubishi Electric, and Honda Motor, maintain considerable strengths in production volume, client engagement, and implementation capacities. However, startups are establishing vital positions in nascent fields like orchestration software, perception technologies, and workflow streamlining.
Yamanaka stated, “The bond between nascent companies and entrenched corporations forms a reciprocally beneficial ecosystem. Robotics demands substantial hardware development, profound operational insight, and considerable capital outlay. By combining the extensive resources and specialized knowledge of large corporations with the transformative innovation of startups, the sector can enhance its collective global competitive standing.”
The Terra Drone CEO observed that Japan’s defense sector is also moving away from a landscape dominated by large corporations towards increased collaboration with startups. Large firms continue to prioritize platforms, scalability, and integration, whereas startups are propelling advancements in more compact systems, software, and operations, with swiftness and flexibility emerging as crucial competitive elements.
Firms such as Mujin are creating platforms that interface with hardware, facilitating multi-vendor automation and quicker implementation across various sectors. Other entities, including Terra Drone, are employing comparable methodologies for autonomous systems, merging AI and operational data to underpin scalable real-world deployments.
Doh commented, “The most enduring value will reside with those who manage deployment, integration, and ongoing enhancement.”