Physical AI is emerging as one of the next big industrial battlegrounds, with Japan’s push driven more by necessity than anything else. With workforces shrinking and pressure to maintain productivity mounting, companies are increasingly deploying AI-powered robots in factories, warehouses and critical infrastructure.
Ministry of Economy, Trade and Industry of Japan he said in March 2026 that it aims to create a domestic field of natural artificial intelligence and capture a 30% share of the global market by 2040. The country already holds a strong position in industrial robotics, with Japanese manufacturers accounting for around 70% of the global market in 2022; according to the ministry.
Based on conversations with investors and industry executives, TechCrunch explored what’s driving this shift, how Japan’s approach differs from the US and China, and where value is likely to emerge as the technology matures.
Driven by labor shortages
Several factors are driving adoption in Japan, including cultural acceptance of robotics, labor shortages due to demographic pressures and deep industrial strength in mechatronics and hardware supply chains, Woven Capital CEO Ro Gupta told TechCrunch.
“Natural AI is being bought as a continuity tool: how do you keep factories, warehouses, infrastructure and service operations running with fewer people?” Hogil Doh, general partner of Global Brain, also said. “From what I see, labor shortages are the primary factor.”
of Japan demographic the tingling accelerates. The population decreased for 14th consecutive year in 2024; of working age make up just 59.6% of the total, a share projected to shrink by nearly 15 million over the next 20 years, Doh pointed out. It is already reshaping the way companies operate: 2024 Reuters/Nikkei survey Labor shortages are the main force driving Japanese businesses to adopt AI.
“The driver has shifted from simple performance to industrial survival,” Sho Yamanaka, director of Salesforce Ventures, told TechCrunch. “Japan is facing a physical supply constraint where basic services cannot be maintained due to labor shortages. Given a shrinking working-age population, natural AI is an urgent national need to maintain industrial standards and social services.”
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Japan is stepping up efforts to promote automation across manufacturing and logistics, according to Mujin CEO and co-founder Issei Takino. The government is promoting automation to address structural challenges such as labor shortages. Mujin, a Japanese company, has built software that allows industrial robots to handle picking and logistics tasks autonomously. Mujin’s approach focuses on software — specifically robotics control platforms — that allows existing hardware to operate more autonomously and efficiently, Takino said.
Hardware power, system risk
Where Japan has historically excelled is in the physical building blocks of robotics. Whether that advantage translates into the age of artificial intelligence is a more open question. The country continues to show strength in key robotics components such as actuators, sensors and control systems, according to Japan-based entrepreneurs, while the US and China are moving faster in full stack systems development that integrate hardware, software and data.
“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 the global supply chain. The current priority is to accelerate system-level optimization by integrating deep AI models with this hardware.”
Hardware capabilities are strongest in China and Japan, with Japan particularly strong in robot motion control, while the U.S. leads in service level and market growth, Takino said. Historically, many American companies have leveraged their software strengths to create integrated businesses – similar to Apple – by combining powerful software platforms with high-quality hardware sourced from Asia. However, this model may not fully translate to the emerging world of physical artificial intelligence, Takino said.
“In robotics, and especially natural artificial intelligence, it is important to have a deep understanding of the physical characteristics of the material,” Takino said. “This requires not only software capabilities, but also highly specialized control technologies, which take considerable time to develop and have high failure costs.”
WHILL, a Tokyo- and San Francisco-based startup that makes autonomous personal mobility vehicles, is building on Japan’s “monozukuri,” or heritage of craftsmanship, as it takes a broader, full-stack approach to global expansion, 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-haul and autonomous transport. The company is leveraging both Japan and the U.S. for development, using Japan to improve hardware and address the needs of an aging population and the U.S. to accelerate software development and test large-scale commercial models, Sugie noted.
From pilots to real-world deployment
The government is putting money behind the push. Under Prime Minister Sanae Takaichi, Japan is committed to this $6.3 billion to strengthen core AI capabilitiespromote the integration of robotics and support industrial development.
The transition from experimentation to real development is already underway. Industrial automation remains the most advanced field, with Japan installing tens of thousands of robots each yearparticularly in the automotive sector. Newer apps are also starting to gain traction, Doh said.
“The brand is simple – customer-paid implementations rather than vendor-sponsored testing, reliable operation over full shifts and measurable performance metrics such as uptime, human intervention rates and productivity impact,” said Doh.
In logistics, companies are developing automated forklifts and warehouse systems, while in facilities management, inspection robots are being used in data centers and industrial spaces.
Companies like SoftBank are already putting natural AI into practice, combining vision language models with real-time control systems to enable robots to interpret environments and perform complex tasks autonomously.
In defense, where autonomous systems are becoming fundamental, competitiveness will depend not only on platforms but on operational intelligence powered by natural artificial intelligence, Terra Drone CEO Toru Tokushige told TechCrunch. Tokushige added that by combining operational data with AI, Terra Drone is working to enable autonomous systems to operate reliably in real-world environments and support the advancement of Japan’s defense infrastructure.
Investments are moving beyond hardware, with companies pouring more capital into orchestration software, digital twins, simulation tools and integration platforms, according to investors and industry sources.
The rise of hybrid ecosystems
Japan’s natural AI ecosystem is also evolving in ways that differ from traditional models of technological disruption. Rather than a winner-take-all dynamic, industry participants expect a hybrid model, with established companies providing scale and reliability, while startups drive innovation in software and systems design.
Large incumbents, including Toyota Motor Corporation, Mitsubishi Electric, and Honda Motor, retain significant advantages in manufacturing scale, customer relationships, and growth capabilities. But startups are playing critical roles in emerging areas like orchestration software, perception systems, and workflow automation.
“The relationship between startups and established companies is a mutually complementary ecosystem,” Yamanaka said. “Robotics requires heavy hardware development, deep operational expertise and significant capital expenditures. By combining the vast assets and domain expertise of large corporations with the disruptive innovation of startups, the industry can enhance its collective global competitiveness.”
Japan’s defense ecosystem is also moving away from the dominance of large companies toward greater collaboration with startups, Terra Drone’s CEO said. Large companies remain focused on platforms, scale and integration, while startups drive development in smaller systems, software and functions, with speed and adaptability becoming key competitive factors.
Companies like Mujin are developing platforms that sit on top of hardware, enabling multi-vendor automation and faster growth across industries. Others, including Terra Drone, are applying similar approaches to autonomous systems, combining artificial intelligence and operational data to support real-world applications at scale.
“The most defensible value will be whoever owns the development, integration and continuous improvement,” Doh said.
