Japan Investment Corporation shifts capital to physical AI due to labor shortage

Yuka Hata, senior managing director and head of equity investments at Japan Investment Corporation (JIC), told Bloomberg that demand for capital among Japanese companies is growing as the country directs investments toward physical artificial intelligence and deep tech.

What are JIC and physical AI

Japan Investment Corporation is a state-owned investment fund created in 2018 with participation from Japan's Ministry of Economy, Trade and Industry (METI) to support the growth of strategic sectors through direct investment. The fund operates as a growth investor: it deploys capital not so much in early-stage startups, but in companies that need funds to scale already-functioning businesses.

The term "physical AI" in the industry refers to the application of artificial intelligence in robots, industrial automation, and autonomous machines — systems that do not merely process data, but physically act in the real world: assembling parts on a conveyor, moving cargo in a warehouse, managing production lines and warehouse logistics. This term has become widely used in recent years largely due to speeches by NVIDIA CEO Jensen Huang, who has repeatedly described the next stage of AI development as a transition from language models to robots and autonomous systems capable of perceiving and altering the physical world. Unlike purely software-based AI models, such systems require investment not only in algorithms but also in equipment, sensors, and production capacity — hence the growing demand for capital that Hata describes.

In contrast to purely software-based AI models, such systems require investment not only in algorithms, but also in equipment, sensors, and production capacity — thus the growing demand for capital that Hata describes.

Why Japan is betting on AI

According to Hata, Japan's growing labor shortage has intensified the need for artificial intelligence solutions, making this sector a key investment priority for JIC.

• Hata is senior managing director and head of equity investments at JIC
• Demand for capital among Japanese companies is growing
• Investment focus is shifting toward physical AI and deep tech
• Labor shortage in Japan is cited as the key reason for interest in AI solutions

Japan's demographic problem is well known: the country's population has been aging and declining for several decades, with the working-age population shrinking faster than in many other developed economies. This has long driven Japanese industrial groups — from Fanuc and Yaskawa to Honda and SoftBank — to develop robotics as a way to compensate for labor shortages in manufacturing, logistics, and elderly care.

Japan between software and physical AI

In the global AI race, Japan traditionally lags behind the US and China in developing large language models and mass-market consumer AI products, but historically maintains strong positions in industrial robotics and precision engineering. Hata's words essentially describe a logical strategy: instead of trying to catch up with competitors in software AI models, Japanese state capital is concentrating on an area where the country already has an industrial advantage — physical AI systems.

Similar dynamics are visible beyond Japan: in recent years, large sums of venture and institutional capital on the global market go not only to language model developers, but also to makers of humanoid and warehouse robots, as well as companies automating production. JIC, judging by Hata's words, is integrating Japanese companies into this same trend, leveraging the country's industrial base.

What this means

Japan's state capital is increasingly flowing not only into software AI startups, but into physical automation and robotics — a structural response to the country's demographic crisis, rather than simply following a fashionable investment trend.