In the neon-lit laboratories of 1980s Japan, the future seemed already written. While Silicon Valley was in its infancy, Tokyo was already pouring billions into several major technology programs aimed at supporting cutting-edge scientific research. These included the Exploratory Research for Advanced Technology (ERATO), next-generation R&D program, and the Act for Strengthening Infrastructure for Research and Development of Industrial Technologies. Japanese companies took the cue, with Toyota starting to explore the auto-drive and voice command system, while the likes of Hitachi, Toshiba, and Panasonic had developed their own robotics divisions. The Japanese government also launched the “Fifth Generation Computer” project, aiming to create an “epoch-making computer” to surpass Europe and the United States in the field of information and technology.
Unsurprisingly, it was also in Japan that neocognitron, the architectural ancestor of the neural networks that power systems like ChatGPT, was developed by computer scientist Kunihiko Fukushima.
Yet, as the asset bubble burst in the 1990s, Japan’s digital sun set. A “lost two decades” followed, characterized by capital flight and a devastating brain drain, which saw many researchers leave the country. Today, Japan finds itself in an unfamiliar position where it is watching a technological revolution it helped to imagine take shape largely beyond its borders.
Now, Prime Minister Takaichi Sanae’s government is attempting an ambitious strategic reset. Building on the successes of its 2015 Revitalization Strategy, Japan introduced the “Human-Centered Principles for an AI Society,” proposing its vision of becoming the world’s first “AI-ready society.” With the introduction of the 2025 AI Promotion Act earlier this year, Japan is looking to rebrand itself as the “world’s most AI-friendly country.”
Can a country defined by its late-20th century successes and a “silver population” truly overcome its comfort zones to become a frontier for 21st-century digital advancements?
The Demographic Imperative and Limits of Scale
For policymakers in Tokyo, the demographic statistics are stark and loom heavily over the country’s social and economic future: by 2070, Japan’s population is projected to shrink by 30 percent, with four out of every ten citizens aged 65 or older. AI thus comes across as a digital lifeline insofar as economic productivity is concerned. Digitalization, with AI at its core, might well be the panacea to sustaining productivity amidst labor shortages. Research estimates that AI is expected to inject 197 trillion yen ($1.3 trillion) into the Japanese economy by 2030. According to research by Accenture, Japan stands to gain more from AI-driven economic growth than any other developed economy, precisely because its labor shortage is so acute.
Yet the demographic case for artificial intelligence, compelling as it may be, only tells part of the story. The challenge for Japan is not simply to deploy AI to offset a shrinking workforce but rather to determine what kind of AI economy it can realistically build.
The global center of gravity in artificial intelligence has shifted toward scale: vast data sets, deep capital markets, and energy-intensive compute infrastructure. These are areas where Japan’s advantages are limited. Large language models (LLM) neatly encapsulate this dilemma. Japanese-language data remains comparatively scarce, constraining both model performance and commercial reach. Unlike English-language systems, which benefit from global adoption and continuous feedback loops, Japanese models cater to a narrower domestic market. This limits incentives for private investment and makes it harder to justify the enormous costs associated with frontier model development.
Despite public funding increasing, AI capital investment in Japan as a whole remains relatively modest relative to the U.S. or China. The Japanese tech ecosystem, once operating at the technological frontier, has become more adept at incremental improvement than setting the pace of change.
The energy and infrastructure demands of AI development further complicate the picture. Advanced AI development is optimal when low-cost power and large-scale data centers are in abundance, and both are difficult to expand in a country with limited land, high energy prices and a continued reliance on imported resources.
Playing to Strengths
However, if Japan is unlikely to dominate the next generation of general-purpose AI models, it remains unusually well positioned to shape how artificial intelligence is deployed in society. Decades of leadership in robotics, precision manufacturing, and embedded systems have produced an industrial base where software and hardware evolve together. Consequently, for Japan, the value in AI lies not in scale or spectacle but in being safely and reliably integrated into society.
While AI’s productivity dividends in manufacturing and logistics are well-known, the case is even more pronounced for the healthcare and elderly care sectors in Japan. With demand rising and labor supply decreasing, AI-driven tools and applications (e.g., diagnostics, drug discovery, patient monitoring) in those sectors highlight Japan’s unique advantage. The reason is a simple one: these are applications where trust, regulation and acceptance of AI technology matter as much as raw computational power.
Rather than exporting consumer services a la ChatGPT or Deepseek, Japan’s comparative advantage may lie in supplying AI-enabled industrial and social solutions to ageing economies. Its deep economic ties with virtually all countries with aging populations, when coupled with its long-standing reputation for quality and reliability, provide a route to regional influence that does not depend on absolute technological dominance.
Beyond industrial and societal applications of AI, Japan occupies a distinctive position in global AI governance. As a country neither associated with unrestrained platform capitalism nor state-led digital control, it is often viewed as a neutral and credible actor in global technology debates. That standing has allowed Tokyo to play an outsized role in shaping international norms. Japan’s advocacy of “human-centered” AI principles has resonated among advanced economies seeking a middle ground between innovation and regulation. In a fragmented global AI landscape, such “reputation currency” carries tangible weight. Further cementing this credibility is its domestic practice, where emphasis on safety, accountability and social acceptance reflects recognition that public trust is a prerequisite for wider AI adoption.
A Different Type of AI Leadership
Japan’s re-engagement with artificial intelligence is commonly framed as “catching up.” Given the focus is less on scale and more on application and governance, framing it as alignment might more accurately capture the situation. Although such an approach is unlikely to produce headline-grabbing breakthroughs, it may yet yield something more durable over the long run: AI systems that are embedded meaningfully in society, accepted by users, and governed in ways that can be replicated by other countries.
In this sense, global leadership in AI may not necessarily mean building the largest and most powerful AI models but demonstrating how technology can be meaningfully embedded within society. By that measure, Japan’s technology journey may yet find its second act.
