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Japan AI strategy tackles ageing population workforce crisis — AI-generated representative image. A Japanese engineer monitors underground heating infrastructure in Tokyo as AI automation expands to address workforce shorta

Editorial Team

How AI startups and automation are helping Japan offset the economic impact of a shrinking workforce and deepening demographic decline

Deep beneath Tokyo's Otemachi business district, an experiment is underway to determine whether artificial intelligence can help Japan confront one of its most pressing economic challenges: a rapidly shrinking workforce. Marunouchi Heat Supply Company, which operates a 30km (18.6-mile) underground network of heating and cooling pipelines serving offices, commercial buildings and transport facilities, has begun using AI to manage its complex infrastructure. The company aims to move towards more automated operations by 2027.

Japan is the world's most aged society, and its demographic decline has created acute labour shortages across industries from manufacturing and logistics to energy and healthcare. Unlike concerns in some countries that automation will replace workers, Japan is increasingly positioning AI as a partner to extend human capabilities rather than eliminate them. The Marunouchi project reflects this broader national strategy of using technology to respond to demographic pressures while maintaining economic productivity.

AI Infrastructure and Start-up Landscape

The Marunouchi project was developed in collaboration with Tokyo-based AI company Preferred Networks. It uses PlantPilot, an AI system trained on historical operating data and the expertise of experienced engineers. The system analyses sensor information and predicts future conditions, providing recommendations designed to improve efficiency while preserving decades of accumulated technical knowledge.

Hidetaka Yagi, assistant general manager of the Development and Engineering Department at Marunouchi, said the company's biggest challenge is securing skilled personnel. "As experienced workers retire, we face the risk of losing valuable operational knowledge. AI can help preserve that expertise and pass it on to the next generation," he said.

Meanwhile, Sakana AI, one of Japan's most closely watched artificial intelligence start-ups, has expanded rapidly from about 50 employees to 150 within a year. The Tokyo-based company has launched commercial products including Sakana Chat, Sakana Marlin and Sakana Fugu.

Demographic Crisis and Global Competition

Japan's ageing population has made it the country leading the world in demographic decline, reshaping the foundations of its economy. The labour shortages span multiple sectors, and the country's response is being closely watched as a potential model for other ageing societies.

Despite Japan's reputation as a technology leader, its digital start-up ecosystem has struggled to keep pace with global competitors. The United States has approximately 690 unicorn start-ups (private companies valued at more than $1 billion), while China has about 160. Japan has only about eight such companies, highlighting a significant gap between its technological reputation and its innovation economy.

Government Investment and Strategic Vision

The Japanese government has placed AI at the centre of its economic strategy. Tokyo plans to mobilise approximately 370 trillion yen ($2.3 trillion) in public and private investment by 2040, targeting artificial intelligence, semiconductors and advanced research.

Ren Ito, chairman of Sakana AI, argued that Japan's path to AI leadership should not be based on copying Silicon Valley. "If we try to compete with American companies in exactly the same way, we will not succeed," Ito said. "Japan needs to develop different ideas, attract talented researchers and create new approaches to innovation." He added that the goal is not to recreate OpenAI in Japan but "to use AI to solve real problems."

Japan's research position has weakened in recent years due to funding pressures, competition for talent and the need to strengthen universities and research institutions. Policymakers acknowledge that AI leadership depends not only on technology and investment but also on developing researchers and the next generation of scientific talent.

Outlook and Challenges Ahead

Japan's AI strategy is being driven by both necessity and ambition. The country is trying to leverage technology to respond to demographic decline while creating a model of innovation suited to its own circumstances. Rather than focusing only on building large AI models, Japan can draw on its traditional strength of adapting technology into practical solutions across energy, manufacturing and healthcare. Artificial intelligence may not provide a complete solution to Japan's economic pressures, but it is becoming a crucial tool in the country's effort to remain productive, competitive and resilient.