Physical AI is becoming a key industrial focus, with Japan driven by necessity due to a shrinking workforce and productivity demands. Companies are increasingly using AI-powered robots in factories, warehouses, and infrastructure. Japan’s Ministry of Economy, Trade and Industry announced in March 2026 its goal to establish a domestic physical AI sector and capture 30% of the global market by 2040. In 2022, Japanese manufacturers held a 70% share in industrial robotics, demonstrating strong industrial robotics capabilities.
According to industry conversations, TechCrunch examined what is driving this shift, how Japan’s strategy is different from the U.S. and China, and where value might emerge as technology evolves.
**Driven by Labor Shortages**
Japan’s adoption of robotics is driven by cultural acceptance, labor shortages due to demographic pressures, and strong industrial skills in mechatronics and hardware, said Ro Gupta of Woven Capital. Physical AI is seen as a continuity tool to operate facilities with fewer people, and labor shortages are the main motivator, noted Hogil Doh of Global Brain.
Japan’s demographic decline is accelerating, with the population shrinking for the 14th consecutive year in 2024, and the working-age population projected to decrease by 15 million over the next 20 years. This demographic crunch shapes company operations, with a 2024 survey indicating labor shortages as the major force pushing AI adoption.
Sho Yamanaka from Salesforce Ventures explained that Japan faces a labor shortage threatening essential services, turning physical AI into a national urgency to sustain industrial and social services standards.
Mujin CEO Issei Takino highlighted Japan’s governmental push for automation and explained Mujin’s software for autonomous industrial robot operations, emphasizing automation as a solution for labor shortages.
**Hardware Strength, System Risk**
Japan excels in robotics’ core components like actuators, sensors, and control systems; however, the U.S. and China focus more on full-system development. Yamanaka stated Japan’s high-precision components as a strategic advantage in the global supply chain, with a need for AI model integration with hardware for system optimization.
According to Takino, Japan is strong in robot motion control, China in hardware capabilities, and the U.S. leads in service layers. He noted robotics requires understanding physical hardware characteristics and involves substantial software and control technology development.
WHILL, a startup creating autonomous mobility vehicles, leverages Japan’s craftsmanship and a full-stack approach for global expansion, using Japan to refine hardware for aging populations, and the U.S. for software and commercial model testing.
**From Pilots to Real-World Deployment**
Japan’s government is heavily investing, committing $6.3 billion to strengthen AI and robotics integration. The move from pilot projects to real deployment shows progression in industrial automation, especially in Japan’s automotive sector, with growing applications in other areas.
Doh stated signs of deployment include customer-paid implementation, reliable operations, and measurable metrics. Logistics and facilities management are adopting more physical AI.
Technology companies such as SoftBank are utilizing physical AI, combining vision-language models with systems to enable autonomous robotic tasks. In defense, physical AI is key, as stated by Terra Drone CEO Toru Tokushige, emphasizing AI’s role in autonomous systems functioning reliably.
**The Rise of Hybrid Ecosystems**
Japan’s physical AI ecosystem shows a hybrid model rather than winner-take-all, with established companies providing scale and startups driving innovation in software and system design.
Large firms like Toyota and Honda hold advantages in scale and deployment, while startups play essential roles in areas like software and system design. Yamanaka emphasized the complementary relationship between corporations and startups in robotics, combining resources and innovation.
The defense sector is also seeing more collaboration between corporations and startups, focusing on speed and adaptability. Companies like Mujin enhance multi-vendor automation, while Terra Drone uses AI and data for large-scale applications.
Doh emphasized that the most valuable aspect will be those controlling deployment, integration, and continuous improvement.