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.

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.