There has been so much attention paid to

the AI boom in the United States and

China, Japan has sort of been ignored.

Should it be? Japan has in recent years

launched a leading edge AI lab, a

leading edge semiconductor foundry, and

several integrator startups. Over the

past week, I've had another set of

conversations with various companies and

people in Tokyo. Mostly I explored the

question, how is the AI boom going in

Japan? I recognize that talking to a few

people does not a country profile make.

But in today's video, a small vibe check

on the Japanese AI boom.

We can split up AI progress in Japan

into two categories, deployment and

development. Let us start with

deployment for Japanese consumers. Is

generative AI being used? I can

certainly say that the AI buzzword

marketing is prolific. Much like in the

United States, it's been leaking into

everything. Everything is AI now, often

with ample sidehelpings of ICT. They run

these video adverts and taxis. One is an

intriguing but inscrable series

featuring a very attractive actress

interviewing a rabbit puppet. Maybe I

should adopt that format.

There are also several commercials

blaring out the importance of AI. One is

run by this organization called GAGA

which stands for association to

generalize utilization of generative AI.

It apparently administers tests for

generative AI passport a certification

for avoiding generative AI risks. I

cannot attest to its effectiveness.

I do think that ordinary consumers are

using generative AI tools. ChatGBTified

Giblly style images can be seen on

social media here. LLMs are used for

translation regularly. Corporate reports

mention that some percentage of

companies use AI to generate images for

marketing, saving time. And it does seem

like programmers in Japan, like their

peers in the United States, are rapidly

adopting coding AI tools like Claude

Code. I expect that adoption to

continue.

The extent to which they are being used,

however, I need to spend more time on in

a future visit. Anecdotally, my

impression is that Japanese programmers

are more limited in how much claude code

they can use.

Something that I cannot help but notice,

however, is that all of these generative

AI tools are foreignade, which makes me

ask, where are the popular domestic AI

models? Let's get back to that one

later.

The state of corporate deployment of AI

and generative AI in particular remains

a mixed bag. In certain domains, AI

remains underutilized. In fact, general

information technology and processing

remains underutilized. I visited an HR

outsourcing company here and not a small

one. And a big topic was how competitors

struggle to automate internal processes.

It's all people work. For instance,

there is a significant tax form that

Japanese have to fill out and file with

the government. and they told me how

they were the only ones to have

automated the form with an online

wizard, which feels like something that

should have been done 20 years ago. I

know it's unfair to pick on tax stuff,

but yeah. I asked them if they use AI to

automate their internal work processes,

and they told me about how they trained

a small classifier to categorize the

tens of thousands of emails they receive

from various clients each month.

This is part of the challenge of

discussing AI in corporate Japan. In the

workforce, AI still often means this

sort of small AI, basic classifiers, and

image recognition models. I then

clarified that I was asking about

generative AI like chat GPT and was told

that that stuff was not even close to

being on their radar. In their eyes, the

human should always be in charge.

Underline that last part. I suspect that

bringing generative AI to all of Japan's

corporates might take a generation. A

few forwardthinking companies are

pushing employees to use AI in a

top-down manner, but the smaller

businesses still lag far behind.

The second part of the equation is AI

development. And in this I worry that

Japanese firms are making the same

mistakes in AI that they made in

software some generations ago. Today

there is an armada of system integrator

businesses that deploy AI into corporate

and government workplaces.

I was shown a case study of how a large

power company worked with an AI system

integrator to train a model to replicate

the button presses of a human operator

at a particular power plant. The model

works very well and human labor was

saved.

This is a good business for these system

integrators. Some of Japan's most

valuable startups are actively pursuing

these consulting gigs. And I do not

blame them for taking these jobs. Money

is money. And isn't Ford deployment

system integration what Palunteer is

doing? I'm I'm just joking, guys. Don't

come after me. But these are small AI

models like the email classifier I

mentioned earlier. I'm reminded of how

Japanese software companies heavily

niched themselves down with extremely

custom software solutions. I discussed

this in a prior video.

With this excessive customization,

software companies cultivated Galopagos

syndrome, making software that fell

behind global standards and got

increasingly more expensive to maintain.

My biggest worry is that the big LLMs or

the agent layers wielding them

eventually enable competitors to vastly

outperform these little AI models. I

lean to big general solutions, not these

small niche ones. Another

thing is revenue. Richard Katz, who

writes a Substack that I like called

Japan Economy Watch, points out that

Japanese companies tend to look at

information technologies as more a way

to cut costs and improve productivity.

This is in contrast with executives at

American companies, which seem to see IC

Technologies as opportunities to

generate more revenue. I don't know if a

system integrator can help clients with

that. I would like to see more Japanese

companies trying to use AI to grow the

pie in this. I feel like Japan might be

well suited for the AI materials and

drug discovery spaces. Big Japanese

companies already have their own systems

to discover new items and probably also

have a wealth of data lying around.

There are AI materials discovery

startups all over the world. But in

Japan, a few that have caught my eye are

Matlantis and MI6.

Someone in the semiconductor space also

told me about Eiktol which spun out of

Nagoya University. I tried to reach out

to them but got a natada. Guys, read my

message. Sakana AI's AI scientist might

also have some potential here, though

I've not heard much about its

achievements. Hopefully, that changes

soon.

One of the key ingredients to creating

new AI models is compute. Japan is

building a few AI data centers, but

nothing like what the US and China are

doing. Reuters last month reported a

data center cluster in Toyama with

future capacity in total of 3.1 gawatt

which doesn't feel big compared to

Stargates 10 gawatt. They might be

restricted by the power supply situation

though with Japan there is a

conceptually easy fix. About half of

Japan's nuclear power plants are

currently idle because of Fukushima.

Turning them back on, which I know can

be quite difficult, can help.

And then there are the chips and

systems. For that, I think Japan's

hardware strengths can help. Google's

TPU chips show the potential benefits of

not needing to pay the Nvidia tax.

There's another AI company building

their own hardware, Preferred Networks.

one of Japan's largest and most valuable

AI startups. Founded in 2014, they

started with convolutional neural

networks and the like before pivoting

into transformers and now LLMs.

In 2017, they worked with a Kobe

University professor to design their own

chips, the MN Core series, the first and

second of which came out surprisingly

quickly. After Chat GBT, they began

working on a new line of 3D stacked

processors focusing on LLM inference,

the M and Core L1000.

These L1000s will be ready by 2027. I

reckon that they will build a few data

centers with these guys. And while it

seems like this hardware will mostly run

their own models, they said they will

make it possible to run other companies

models, too. And I think that's an

intriguing twist because it opens the

door for them to run inference on

various closed and open-source models

and that can be a legitimate business.

How big? That's dependent on many other

things, of course, but it's intriguing.

Another of Japan's big issues when it

comes to AI development has been

talents.

While there are indications that

Japanese on the whole are not as

digitally savvy as their East Asian

peers, it does seem like Japanese have

the raw skills. Their high school

students' math, science, and problem

solving scores rank quite high. And the

top tier of Japanese talent should be

able to hold their own on the world

stage. Japan is certainly capable of

producing people who can do

groundbreaking AI work. I was surprised

to learn that the popular AI framework

PyTorch drew strong inspiration from the

ideas of an older Japanese framework

called Chainer. Chainer was developed by

the affforementioned preferred networks.

Someone also pointed out to me the

Japanese seem to perform well in Kaggle,

the data science and machine learning

community. Kaggle's skills and success

do not quite map onetoone to AI

algorithm research capability, but I

would say it is indicative. That said,

it is true that Japanese are not well

represented in the tight community of

exentric AI theorists and researchers,

which is interesting because X/Twitter

is popular in Japan. I do also think

that it is inevitably true that the

absolute top tier Japanese AI

thinkers/programmers

will want to go to the United States

considering how much more they can get

paid there. Japanese companies, even the

top most highly valued startups like

Sakana AI can never offer the same tier

of salaries that the American giants

can. But there will always be some who

would prefer to live in Japan rather

than the United States. And I think that

can be of benefit.

The role of government in Japan has

mixed views here. On the one hand,

people seem to believe that the Japanese

government listens to what the industry

is saying and tries to respond.

Moreover, the government is a rich

source of business. There's some

anticipation for the new prime

minister's fiscal expansion plans, which

signal a lot of government and defense

business coming down the pike. Yet at

the same time, the government has its

own way of doing things, their own

priorities, and I can sense that

frustrates some in the Japanese AI

community. I'm sure that one thing that

the government probably hears a lot from

industry is that private companies lack

the resources to train big LLMs and make

new products with them. The government

has been willing to help with the

former. They're putting efforts into a

few programs to promote generative AI. A

prominent one being the Geniac project

which stands for Generative AI

accelerator challenge. It is a program

by Medi where the government shares some

of the cost of training an LLM and that

has allowed companies like Rakuten to

train new models. Korea is running a

variant of this game too, eliminating

entrance every 6 months. Bloomberg and a

few other netizens are calling it the AI

Squid Game. Games and programs like this

are a way to demonstrate fairness,

especially when using taxpayer funds.

They want to spread things out across

various players.

So, the government is plenty fine with

putting public money into R&D and

development, not so much into

productization and commercialization,

which they see as for private venture.

But Japanese companies don't always have

the margins to fund this, leading thus

to iffy products.

The Japanese government has been pushing

the concept of sovereign AI, so the

phrase comes up often in my talks. My

understanding of it is that when a

Japanese sovereign AI model is trained,

it is trained with Japanese data

controlled by Japanese entities. In

addition, those models are trained and

inferenced in data centers within Japan.

The idea is that Japan can maintain

resilience in its AI infrastructure. I

get and do not want to downplay the

benefits, especially considering the

ongoing rare earth's kurfuffle,

but there does seem to be an overfocus

on sovereign AI. It is a variant, not

the end goal, and I think Japanese

companies should be aiming higher. Once

the data is collected and data centers

built, you train by essentially running

a script. What new competencies or

leading edge knowledge are we building

here? Who will use a sovereign AI unless

they are mandated to by a regulation or

restriction? True, I can see times when

the regulation is right. For instance,

Preferred Networks in December 2025

announced that their Playo translate

model is being adopted by the Japanese

government for translating

administrative documents. You would

probably want a sovereign AI for that.

But for many situations, you want the

best. And if your companies are to be

globally competitive, and Japan's top

companies are indeed that, then they

need to use the best. And I don't think

a Japanese sovereign AI will ever be the

best. If only because I doubt there is

enough good Japanese data out there.

Like I can't imagine a modern LLM ever

being world class in math or science

problems without training data bought

from mainland China.

Japan semiconductor industry of the

1980s is exhibit A++ of this. One of the

major reasons for their decline was that

the Japanese company stuck with Japanese

tools even as the latter declined. It

was ride and die Japan and they died.

The Japanese chip guys have learned

their lesson. Rapidus is Japan

semiconductor champion, the new one, and

funded with taxpayer dollars. And even

so, they went out and bought an ASML

lithography machine rather than a Nikon

machine because ASML had the best. Sorry

to the Nikon folks. They make a great

machine. I visited the Nikon Museum and

had a blast.

Side note, I know I was a bit skeptical

about Rapidus, especially at the start,

but they got their 2nmter fab up in

Hokkaido, are feeling out customers, and

seem to have a focused strategy. all in

just three years. That deserves some

props. Japan really does know how to do

hardware.

In a way, Rapidis shines a path forward

for Japanese AI. Go straight for the

leading edge. Go out and find the best

technology you can get your hands on,

IBM's in this case. Bring it in and

start improving on it.

It's how Japan kickstarted itself in the

Maji Revolution days and thereafter. Why

not do the same for AI? Anyway, just my

two cents.

Before we conclude, I want to say that I

hope to have more conversations with

people in the Japanese AI community in

the future. If you are in that community

and want to swap thoughts, please

contact me. We can talk next time I am

in town.

So, reflecting on this trip, the thing

that I think Japan most lacks compared

to Silicon Valley is ambition. A

recurring topic in my conversations has

been Japan's digital deficit. The

significant amount of Japanese GDP

flowing out of the country to foreign

software providers, mostly American

ones. This digital deficit is

substantial, measured at about 24

billion in the first half of 2025, and

it is still growing. Note that for all

of 2023, the deficit was only just $37

billion.

It's not clear how they're going to

close this gap unless Japanese companies

somehow make software products that can

go head-to-head with those of the

American tech companies. Most Japanese

people considering this notion sort of

just think, well then that is impossible

and sort of give up before they start.

Except the inevitable, right?

Meanwhile, in the valley, there is an

immense flush of ambition and

entrepreneurial energy kicked off by a

variety of things, including ChatJBT

success and growth. They're guys who

want to disrupt both ASML and TSMC at

the same time. Think about that. It

would be silly to ask the Japanese to

have the same rah rah as the bay, but I

think the Japanese AI boom can do with a

huff or two of their ambition. Soft

Bank, Preferred Networks, and Sakana AI

shouldn't be the only big Japanese

non-government organizations with a

spine. All right, everyone. That's it

for tonight. Thanks for watching.

Subscribe to the channel. Sign up for

the Patreon. And I'll see you guys next

time.