Physical AI is emerging as one of the next major industrial battlegrounds, with Japan’s push driven more by necessity than anything else. With workforces shrinking and pressure mounting to sustain productivity, companies are increasingly deploying AI-powered robots across factories, warehouses, and critical infrastructure.

Japan’s Ministry of Economy, Trade and Industry said in March 2026 that it aims to build a domestic physical AI sector 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 about 70% of the global market in 2022, according to the ministry.

Based on conversations with investors and industry executives, TechCrunch explored what’s driving that shift, how Japan’s approach differs from the U.S. 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 driven by demographic pressures, and deep industrial strength in mechatronics and hardware supply chains, Woven Capital managing director Ro Gupta told TechCrunch.

“Physical AI is being bought as a continuity tool: how do you keep factories, warehouses, infrastructure, and service operations running with fewer people?” Hogil Doh, Global Brain general partner, also said. “From what I’m seeing, labor shortages are the primary driver.”

Japan’s demographic crunch is accelerating. The population declined for a 14th straight year in 2024; those of working age make up just to 59.6% of the total, a share projected to shrink by nearly 15 million over the next 20 years, Doh pointed out. It’s already reshaping how companies operate: a 2024 Reuters/Nikkei survey found labor shortages are the main force pushing Japanese firms to adopt AI.

“The driver has shifted from simple efficiency to industrial survival,” Sho Yamanaka, a principal with Salesforce Ventures, said in an interview with TechCrunch. “Japan faces a physical supply constraint where essential services cannot be sustained due to a lack of labor. Given the shrinking working-age population, physical AI is a matter of national urgency to maintain industrial standards and social services.”

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Japan is stepping up efforts to advance automation across manufacturing and logistics, according to Mujin CEO and co-founder Issei Takino. The government has been promoting automation to address structural challenges such as labor shortages. Mujin, a Japanese company, has built software that lets industrial robots handle picking and logistics tasks autonomously. Mujin’s approach centers on software — specifically robotics control platforms — that allows existing hardware to perform more autonomously and efficiently, Takino said.

Hardware strength, system risk

Where Japan has historically excelled is in the physical building blocks of robotics. Whether that advantage translates into the AI era is a more open question. The country continues to demonstrate strength in core robotics components such as actuators, sensors and control systems, according to Japan-based venture capitalists, while the U.S. and China are moving more quickly to develop full-stack systems 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 AI models deeply 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 the service layer and market development, Takino said. Historically, many U.S. companies have leveraged their software strengths to build integrated businesses – similar to Apple – pairing strong software platforms with high-quality hardware sourced from Asia. However, this model may not fully translate to the emerging world of physical AI, Takino

In Japan, the robot isn't coming for your job; it's filling the one nobody wants