Japan Tech Market Trends

Published on October 31, 2025 and written by Cyril Jarnias

Japan, globally recognized as a major technological powerhouse, continues to assert its leadership role in the field of innovation. With remarkable advancements in artificial intelligence, robotics, and telecommunications, the country is establishing itself on the international stage. Japanese companies are heavily investing in green technologies and sustainable solutions, reflecting a global trend toward more environmentally friendly development. The evolution of consumer needs and challenges related to digital transformation are pushing market players to redefine their strategies, thus opening exciting new perspectives for the future of Japan’s technology industry.

Emerging Technological Innovations in Japan

Artificial Intelligence (AI)

Japan aims to become a global leader in AI research and development, with advancements in various fields. For example, in the medical sector, the “AI for Science” program is promoted through public-private collaboration for drug development and diagnostic support using high-performance computing capabilities. Furthermore, development of a new flagship system, successor to the next-generation supercomputer Fugaku, has begun. Additionally, companies like Toyota are strengthening product development integrating AI technology in autonomous vehicles and intelligent robotics.

Robotics

Japan has long been recognized as a global leader in the robotics industry. Currently, the focus extends beyond industrial robots to include healthcare and nursing sectors, where “service robots” are experiencing rapid growth. The humanoid robot “T-HR3” and the Field Support Robot (FSR) developed by Toyota are characteristic examples combining human-centered design and advanced AI control. Under the “Society 5.0” concept, expectations are growing for achieving a human-assistance society connected to IoT.

Internet of Things (IoT)

IoT technology is widely adopted inside and outside Japan, and its application scope continues to expand. This includes improving manufacturing processes through building “smart fabs” and introducing smart devices for households. Additionally, the Japanese government supports numerous large-scale social implementation projects. Within this framework, automotive manufacturers are also focusing on connected car technologies.

Green Technology

In the fight against climate change, Japanese companies are actively engaged in researching innovative solutions, such as renewable energy and carbon-neutral fuel technologies. Concrete examples include city-scale “smart city” projects by Kawasaki and Toyota, where advanced green innovations like waste reduction and hydrogen energy promotion are in testing phases.

Technological Innovation Challenges

• Regulation and Governance: Clear guidelines are needed regarding ethical aspects, safety, and privacy protection, particularly in emerging fields related to AI and data.
• Funding: There is a lack of sufficient funding support for startups, requiring effective utilization of new policy tools such as prize-based projects.
• Social Acceptance: Overcoming psychological anxiety or resistance from regional residents toward introducing new technologies is also crucial.

Impacts on Regional and International Economy

These innovations strongly influence Japan’s domestic economy, as well as the international market. For example, exporting services related to autonomous vehicles and expanding green technologies abroad strengthen the Japanese brand. Simultaneously, they lead to intensified competition with China and the United States, as well as opportunities to deepen cooperative relationships with the European Union. In this context, forming a unique Japanese model—targeted investment in specific fields—constitutes the key.

The Role of Startups in the Japanese Tech Market

Active Technology Sectors

• AI (Artificial Intelligence) and Robotics: Although the percentage of investment in AI is lower than in North America, there is growth potential. Robotics is also developing extensively, ranging from industry to services.
• Deep Tech: Fields requiring heavy investment, such as IoT, clean technologies, and biotechnology, constitute the main focus.
• Entertainment Sector: An expansion trend is observed, particularly toward the B2C market with video content.
• Energy and Environmental Technologies: This sector is also gaining attention as an initiative toward a decarbonized society.

Challenges Faced by Startups

1. Regulatory Constraints
   • The IPO market and M&A environment for new enterprises in Japan are less mature compared to other countries. The lack of expertise for post-acquisition management by large corporations is also a challenge.
   • Furthermore, in some industries, the lack of deregulation remains an obstacle to introducing new business models.
2. Initial Funding
   • The size of domestic funds and unit investment amounts is small, which may be insufficient for aiming for large-scale growth. Additionally, foreign venture capital inflow is limited.
3. Talent Shortage
   • The talent pool for management and experts is limited. An enhanced talent recruitment strategy is necessary for advanced business development. This is particularly evident in the Deep Tech field, where there is a shortage of people with expertise.

Support Initiatives

1. Government-Led Programs
   • The Five-Year Startup Development Plan aims to create 5,000 university-originated enterprises by 2027, with various research and development support programs, as well as grants.
   • Promoting the use of the startup visa as a support measure for foreign entrepreneurs is also progressing.
2. Role of NEDO (New Energy and Industrial Technology Development Organization)
   • It offers concentrated support on Deep Tech and emphasizes entrepreneur training through individual projects such as NEP projects. This initiative is comprehensive and adapted to various stages.
3. Collaboration with the Private Sector
   • Besides venture capital (VC), the number of Corporate Venture Capital (CVC) by large corporations is increasing. Some are beginning to build more active collaborations.

Internationally Recognized Examples

Japanese startups recognized in the international market include:

Startup	Sector	Notable Achievement
Spiber	Biomaterials	Raised over 7 billion yen to challenge the sustainable materials market
Astroscale	Space Debris Removal	Stands out as an industry reformer in the space sector

Impact and Outlook for the Coming Years

Expected impact on the overall Japanese market:

• Increased GDP creation effect through the formation of a cluster of emerging enterprises focused on Deep Tech.
• Potential acceleration of digital transformation through the dissemination of AI-based products.

On the other hand, to maintain market competitiveness, it is essential to continue deepening government/private support measures and strengthen global collaboration.

Digital Investments: Opportunities and Challenges in Japan

Recent Digital Investment Trends

• Upward Trend: In Japan, corporate IT budgets are increasing and projected to reach approximately 26,641.2 billion yen in 2025, an increase of about 8.2% compared to the previous year. Interest in generative AI and machine learning platforms is particularly high, with potential new adoption at the forefront.
• Priority Areas: In the AI field, professional application of image recognition, speech recognition, etc., is under development, and low-code/no-code development as well as API management tools are also being promoted. Regarding IoT, transition to a social implementation phase is underway, and concrete use for productivity improvement and social problem-solving is expected.
• Cybersecurity: With the advancement of digitization, strengthening security measures is also a priority, and investments in this area are increasing.

Economic Opportunities

Impact on Startups and Existing Companies

1. Startup Market Expansion:
   • The Japanese government has put forward a startup support plan, aiming to create 100 unicorn companies by fiscal year 2027. This initiative promotes the development of new business models and services, benefiting many new market entrants.
   • The implementation of certain technologies (deep tech, robotics, etc.) creates an environment conducive to global expansion.
2. Promotion of Digital Transformation in Existing Companies:
   • 82% of companies allocate budgets related to digital transformation, and 70% to AI. This enables efficiency improvement and strengthens the ability to propose new products and services through adopting advanced technologies.
3. Effect on Job Creation:
   • New demand for jobs in the digital sector is anticipated. Demand for skilled labor in certain technological fields is increasing, and collaboration with skill development policies is expected.

Potential Challenges

1. Regulatory and Data Protection Issues
   • Using IoT and AI requires ensuring compliance with the Personal Information Protection Act and developing self-regulatory guidelines, posing challenges in legislative framework. Additionally, establishing data circulation infrastructure between Japan and other countries is lagging.
2. Shortage of Skilled Workforce
   • The shortage of talent trained in advanced IT is pronounced. Enhanced educational programs to bridge the knowledge and skill gap of field users are needed, as well as encouraging programming education from an early age as a medium to long-term strategy.
3. Maintaining Competitiveness
   • To reduce foreign dependency, it is necessary to establish a domestic semiconductor production base and promote the development of Japan-specific generative AI models. Furthermore, although multinational competition is intensifying, gaining an advantage remains uncertain.

Impact on International Competitiveness

The Japanese government considers it essential to respond to the reorganization of the value chain in the context of the advent of the generative AI revolution era. Within a system of simultaneous policies, it has clearly defined the direction of extending advanced infrastructure development projects, including economic security. Additionally, it is necessary to continue exploring counterattack axes against offensives from major global players.