Can Japan Counter China’s Dominance in AI?

Japan acknowledges a lag behind global leaders in core AI, with Chinese companies reportedly dominating its domestic market due to lower costs. In response, Japan is focusing on establishing a strong position in integrating AI with robotics and machinery, an area referred to as "physical AI." This leverages Japan's existing strengths in industrial robotics.

The Japanese government's initiative, launched in 2025, includes a $6.34 billion commitment for fiscal year 2026. This funding supports the development of AI for Japan, in Japan, driven by concerns over foreign AI-related threats. The approach reflects a desire for strategic autonomy in AI development, while navigating its alliance with the U.S. and trade ties with China.

A key internal driver for Japan's AI strategy is its aging population and the resulting labor shortages. Automating industries with AI is seen as a practical solution to maintain productivity. Partnerships, such as Sumitomo Corp. with Sakana AI, aim to integrate homegrown AI solutions into domestic businesses, including smaller enterprises, to enhance operational efficiency and address security concerns related to foreign AI models. Sakana AI's models are described as comparable to cutting-edge overseas models.