Japan targets 30% of global physical AI market by 2040

In March 2026, Japan’s Ministry of Economy, Trade and Industry (METI)—the government agency overseeing economic and industrial policy—announced its goal to build a domestic physical AI sector. The country aims to capture a 30% share of the global market for physical AI, defined as AI-powered robotics and autonomous systems, by 2040. To support this initiative, Japan has committed about $6.3 billion to strengthen core AI capabilities, advance robotics integration, and support industrial deployment. This strategy builds on Japan’s existing industrial footprint; according to METI, Japanese manufacturers accounted for about 70% of the global robotics market in 2022.

The push is accelerated by severe demographic pressures. In 2024, Japan’s population declined for a 14th straight year, with the working-age population making up just 59.6% of the total. This segment is projected to shrink by nearly 15 million over the next two decades. Consequently, the adoption of automation has transitioned from a matter of productivity to one of industrial survival, according to Sho Yamanaka, a principal with Salesforce Ventures. “Physical AI is being bought as a continuity tool: How do you keep factories, warehouses, infrastructure, and service operations running with fewer people?” said Hogil Doh, a general partner at Global Brain. Doh noted that the market is shifting toward customer-paid deployments rather than vendor-funded trials, with a focus on measurable metrics like uptime and human intervention rates.

The strategy relies on a hybrid ecosystem that pairs established corporations with startups. Incumbents such as Toyota Motor Corporation, Mitsubishi Electric, and Honda Motor maintain significant advantages in manufacturing scale and customer relationships. Meanwhile, startups are developing the software and orchestration layers. For instance, Mujin develops robotics software, WHILL builds autonomous personal mobility vehicles, and Terra Drone develops autonomous systems. This approach draws on monozukuri, the Japanese concept of craftsmanship and manufacturing excellence, to integrate software with high-precision components. Issei Takino, CEO and co-founder of Mujin, emphasized that physical AI requires a deep understanding of the physical characteristics of hardware and specialized control technologies. Yamanaka described Japan’s expertise in high-precision components—the physical interface between AI and the real world—as a strategic moat. According to Doh, the most defensible value in this emerging sector will belong to whoever controls deployment, integration, and continuous improvement.

Why it matters

Japan is leveraging its historical strength in industrial robotics and hardware to build a domestic physical AI sector. This transition is driven by severe labor shortages and demographic decline, turning technology adoption into a necessity for industrial survival.