Japan Investment Corporation shifts capital toward physical AI as labor shortages bite

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 rising as the country steers investment toward physical artificial intelligence and deep tech.

What JIC and physical AI are

Japan Investment Corporation is a state-backed investment fund established in 2018 with the participation of Japan's Ministry of Economy, Trade and Industry (METI). Its mandate is to support growth in the country's strategic industries through direct investment. The fund operates as a growth investor: rather than focusing on early-stage startups, it mostly backs companies that need money to scale businesses that already work.

The industry uses the term "physical AI" for artificial intelligence applied in robots, industrial automation, and autonomous machines. These systems don't just process data — they act in the physical world: assembling parts on a production line, moving goods around a warehouse, and running manufacturing lines and warehouse logistics. The term has caught on widely in recent years, largely thanks to Nvidia CEO Jensen Huang, who has repeatedly described the next stage of AI as a shift from language models to robots and autonomous systems that can perceive and change the physical world.

Unlike purely software-based AI models, these systems require investment not only in algorithms but also in hardware, sensors, and manufacturing capacity — which, according to Hata, explains the growing demand for capital.

Why Japan is betting on AI

Hata said Japan's worsening labor shortage has increased the need for AI-based solutions, making the 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 rising
• The investment focus is shifting toward physical AI and deep tech
• Japan's labor shortage is cited as the key driver of interest in AI solutions

Japan's demographic problem is well known: the population has been aging and shrinking for decades, and the working-age population is falling faster than in many other developed economies. This has long pushed Japanese industrial groups — from Fanuc and Yaskawa to Honda and SoftBank — to develop robotics as a way to offset staff shortages in manufacturing, logistics, and elder care.

Japan between software AI and physical AI

In the global AI race, Japan has traditionally lagged behind the US and China in developing large language models and mass-market consumer AI products. Historically, however, it has held strong positions in industrial robotics and precision engineering. Hata's comments effectively describe a logical strategy: instead of trying to catch up with competitors on software AI models, Japanese state capital is concentrating on an area where the country already has an industrial edge — AI-powered physical systems.

A similar dynamic is visible beyond Japan. In recent years, large sums of venture and institutional capital on the global market have gone not only to language model developers but also to makers of humanoid and warehouse robots, as well as to companies automating manufacturing. Judging by Hata's remarks, JIC is plugging Japanese companies into the same trend by leaning on the country's industrial base.

What this means

Japan's state capital is increasingly flowing not just into software AI startups but into physical automation and robotics. This is a structural response to the country's demographic crisis, not simply a case of chasing a fashionable investment trend.