[DigitalToday reporter Jinju Hong] Japan has set a goal of developing “physical AI” into a core national industry as its population shrinks and labour shortages worsen. While existing generative AI is technology for a digital space that handles text or images, physical AI refers to AI that moves and reacts in the real world.

On April 5, the IT outlet TechCrunch reported that Japan's Ministry of Economy, Trade and Industry said it will build a domestic industrial base with a goal of securing a 30 percent share of the global physical AI market by 2040.

Japan is focusing on deploying AI robots at factories, logistics warehouses and critical infrastructure sites to protect productivity and operational continuity. Japanese manufacturers accounted for about 70 percent of the global industrial robot market as of 2022, reflecting strong hardware competitiveness. But as competition shifts from components to systems that combine hardware, software and data, it remains a challenge whether Japan can carry its existing advantage into the AI era.

The driving force behind pushing field adoption is not cost reduction but labour gaps. Hogil Doh (호길 도) of Global Brain said, “Physical AI is being purchased as a tool for continuity. The key is how to maintain factory, warehouse, infrastructure and service operations even as manpower declines.” He added, “Labour shortages are the biggest driver.” Sho Yamanaka (쇼 야마나카) of Salesforce Ventures also said, “The driver has shifted from simple efficiency to industrial survival.”

Demographic change is also visible in the numbers. Doh pointed out that Japan's population fell for 14 consecutive years through 2024, and the working-age population share is only 59.6 percent. He also presented a projection that the working-age population will drop by about 15,000,000 over the next 20 years. A 2024 Reuters/Nikkei survey also found Japanese companies citing labour shortages as the biggest reason for rushing to adopt AI.

Corporate strategy is shifting not only to new robots but also to software that makes existing robots more autonomous. Japanese robot software developer Mujin developed robot control software that enables industrial robots to carry out picking and logistics tasks on their own. Co-founder and CEO Takino Isei (타키노 이세이) explained that the company’s strategy lies in software such as a robot control platform rather than hardware.

Competition with the United States and China is also becoming clearer. Japan has strengths in key components such as actuators, sensors and control systems, but the United States and China are assessed as moving faster in developing full-stack systems. Yamanaka said, “High-precision component expertise is a strategic moat as the physical interface that connects AI and the real world.” He added, “The priority is to deeply integrate AI models into hardware and accelerate system-level optimisation.”

Doh also said signals of broader adoption include whether customers move beyond the experimental stage to paid deployments, whether systems run reliably through shift changes, and whether metrics such as uptime, the rate of human intervention and the impact on productivity are measured.

Government funding is also following. Japan has decided to invest about $6.3 billion under Prime Minister Sanae Takaichi’s administration to support strengthening core AI capabilities, robot integration and deployment at industrial sites.