Physical AI is emerging as one of the next major industrial battlegrounds, and Japan is being driven more by necessity than anything else. As workforces shrink and pressure to maintain productivity increases, companies are increasingly deploying AI-powered robots throughout factories, warehouses, and critical infrastructure.
Japan’s Ministry of Economy, Trade and Industry announced in March 2026 that it aims to build a domestic physical AI field and capture a 30% share of the global market by 2040. According to the Ministry of Economy, Trade and Industry, Japan already has a strong position in the field of industrial robots, with Japanese manufacturers expected to account for approximately 70% of the global market by 2022.
Based on conversations with investors and industry executives, TechCrunch explores what’s driving that change, how Japan’s approach differs from the U.S. and China, and where value will emerge as the technology matures.
Caused by lack of manpower
Several factors are driving adoption in Japan, including cultural acceptance of robotics, labor shortages due to demographic pressures, and deep industrial strength in the mechatronics and hardware supply chain, Woven Capital managing director Ro Gupta told TechCrunch.
“Physical AI is being bought as a continuity tool. How can we continue our factories, warehouses, infrastructure, and service operations with fewer people?” added Hogil Doh, General Partner at Global Brain. “From what I see, labor shortages are the main factor.”
Japan’s population decline is accelerating. The population will decrease for 14 consecutive years in 2024. Only 59.6% of the population is of working age, and that proportion is expected to decline by nearly 15 million over the next 20 years, Do said. Already, the way companies operate is being restructured, with a 2024 Reuters/Nikkei survey finding that labor shortages are the main factor prompting Japanese companies to adopt AI.
“The driving force has shifted from simple efficiency to industrial survival,” Sho Yamanaka, a principal at Salesforce Ventures, said in an interview with TechCrunch. “Japan faces physical supply constraints that prevent it from maintaining essential services due to labor shortages. Given the shrinking working-age population, physical AI is a national imperative to maintain industrial standards and social services.”
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According to Mujin CEO and co-founder Kazunari Takino, Japan is stepping up efforts to promote automation across manufacturing and logistics. Governments are promoting automation to address structural challenges such as labor shortages. Japanese company Mujin has built software that allows industrial robots to handle picking and logistics tasks autonomously. Mujin’s approach focuses on software, particularly robot control platforms, that allow existing hardware to operate more autonomously and efficiently, Takino said.
Hardware strength, system risk
Where Japan has historically excelled is in the physical components of robotics. Whether that advantage translates into the AI era is a further open question. Japan continues to demonstrate strength in core robotic components such as actuators, sensors and control systems, while the U.S. and China are moving faster to develop full-stack systems that integrate hardware, software and data, according to a Japan-based venture capitalist.
“Japan’s expertise in high-precision components, the critical physical interface between AI and the real world, is a strategic moat,” Yamanaka said. “Controlling this touchpoint provides a significant competitive advantage in global supply chains. Our priority now is to accelerate system-level optimization by deeply integrating AI models with this hardware.”
Takino said that China and Japan have the strongest hardware capabilities, with Japan particularly strong in robot motion control, while the United States is leading in the service layer and market development. Historically, many U.S. companies have leveraged their software strengths to build integrated businesses, similar to Apple, that combine strong software platforms with high-quality hardware sourced from Asia. But this model may not be fully applicable to the emerging world of physical AI, Takino said.
“In robotics, especially physical AI, it is important to have a deep understanding of the physical properties of the hardware,” says Takino. “This requires not only software capabilities but also highly specialized control technology, which takes significant development time and is costly if it fails.”
WHILL, a Tokyo- and San Francisco-based autonomous personal mobility startup, is taking a broader, full-stack approach to global expansion while leveraging Japan’s tradition of manufacturing, or craftsmanship, CEO Satoshi Sugie told TechCrunch. The company has developed an integrated platform that combines electric vehicles, on-board sensors, navigation systems, and cloud-based fleet management for short-range and autonomous transportation. Sugie noted that the company leverages both Japan and the United States for development, with Japan improving hardware and addressing the needs of an aging population, and the United States accelerating software development and testing large-scale commercial models.
From pilot to actual deployment
The government is investing money in this promotion. Under Prime Minister Sanae Takaichi, Japan has committed about $6.3 billion to strengthen core AI capabilities, advance robotics integration and support industrial development.
The transition from experimentation to real implementation has already begun. Industrial automation remains the most advanced sector, with tens of thousands of robots being introduced every year in Japan, especially in the automotive sector. New applications are also starting to gain traction, Do said.
“The signals are simple: customer-paid implementation rather than vendor-funded trials, reliable operation across shifts, and measurable performance metrics such as uptime, human intervention rates, and productivity impact,” Doh said.
In the logistics field, automatic forklifts and warehouse systems are being introduced, and in the facility management field, inspection robots are being used in data centers and industrial sites.
Companies like SoftBank are already applying physical AI in practice, combining vision language models with real-time control systems to enable robots to interpret their environments and perform complex tasks autonomously.
In the defense sector, where autonomous systems are becoming the cornerstone, competitiveness will depend not only on the platform but also on operational intelligence powered by physical AI, Terra Drone CEO Toru Tokushige told TechCrunch. Tokushige added that Terra Drone is working to combine operational data and AI to ensure autonomous systems function reliably in real-world environments and support advances in Japan’s defense infrastructure.
Investments are shifting beyond hardware, with companies directing more capital toward orchestration software, digital twins, simulation tools and integration platforms, investors and industry observers say.
The rise of hybrid ecosystems
Japan’s physical AI ecosystem is also evolving in ways that differ from traditional models of technology disruption. Rather than a winner-take-all situation, industry players are looking forward to a hybrid model in which incumbents provide scale and reliability and startups drive innovation in software and system design.
Large incumbents such as Toyota Motor Corporation, Mitsubishi Electric, and Honda hold significant advantages in manufacturing scale, customer relationships, and deployment capabilities. But startups are carving out important roles in emerging areas such as orchestration software, recognition systems, and workflow automation.
“The relationship between startups and established companies is a mutually complementary ecosystem,” Yamanaka said. “Robotics requires extensive hardware development, deep operational know-how, and significant capital expenditures. By combining the vast assets and domain expertise of leading companies with the disruptive innovation of emerging companies, the industry can strengthen its overall global competitiveness.”
Japan’s defense ecosystem is also shifting from being dominated by large corporations to increasing collaboration with startups, Terra Drone’s CEO said. While large enterprises continue to focus on platforms, scale, and integration, startups are driving the development of smaller systems, software, and operations, with speed and adaptability becoming key competitive factors.
Companies like Mujin develop platforms that sit on top of hardware, enabling multi-vendor automation and rapid deployment across industries. Other companies, such as Terra Drone, are applying similar approaches to autonomous systems, combining AI and operational data to support real-world applications at scale.
“The most defensible value lies with those responsible for implementation, integration, and continuous improvement,” says Doh.
