Japan’s Next Government Must Centre AI Adoption To Drive Economic Growth

Snap elections compress political timelines, but should not compress ambition. AI and digital technology will drive Japan’s productivity, labour market evolution, and social cohesion for decades to come.

As Japan moves toward a snap election on Sunday 8^th February, political debate will understandably focus on immediate concerns: inflation, security, and economic stability. Yet the next government will inherit challenges that are not cyclical, but structural, such as an ageing population, a shrinking workforce, uneven regional growth, and persistent productivity constraints.

How Japan responds to these challenges will depend less on short-term stimulus and more on whether digital technologies, particularly artificial intelligence, are translated into real economic and social impact. Two priorities should therefore sit at the centre of the next administration’s agenda.

1. Invest in people and organisations to close the AI adoption gap, not just technology

Japan has no shortage of technological capability. It has globally competitive firms, deep engineering expertise, and high levels of public trust in innovation. Yet when it comes to AI adoption at scale, Japan risks falling behind its peers.

Our research shows a clear pattern: while awareness of AI, including generative AI, is high, practical deployment across firms remains uneven, especially among small and medium-sized enterprises. The economic consequences are significant. Japan stands to gain an estimated JPY 49.9 trillion by 2030 if AI is widely deployed across the economy.

Yet most firms are still early in the adoption journey, and these benefits are not automatic. They depend on whether workers and firms have the skills, confidence, and organisational capacity to use AI effectively. Only 8 % of organisations we surveyed have achieved full enterprise-wide AI deployment, with the majority still in pilot or partial stages. This matters even more in a country facing acute labour shortages. Japan’s working-age population is declining, while demand for services, particularly in healthcare, logistics, and local services, continues to rise. AI should therefore be understood not as a labour substitute, but as a labour multiplier.

Handled well, AI can help Japan do more with fewer workers while preserving job quality and social stability. Handled poorly, it risks widening gaps between leading firms and the rest of the economy.

2. Use digital policy to strengthen economic security and solve societal challenges

In an era where economic security and digital policy are inseparable, Japan faces a strategic choice. It could retreat into protectionism, or it could shape the global rules governing emerging technologies.

AI, data, and smart digital platforms can also help solve Japan’s structural social challenges:

Mobility gaps between urban and rural areas can be narrowed with dynamic transport solutions and data-driven planning.

Overtourism can be managed through digital routing and behavioural nudges, spreading economic benefits more evenly across regions.

Labour shortages, particularly acute in healthcare, caregiving, and logistics, can be mitigated through automation and AI-augmented services.

But these technologies raise real concerns around safety, privacy, and fairness. Japan’s governance approach, including ithe AI Promotion Act and the AI Basic plan adopted in December, alongside its principles for human-centric AI, provide a foundation. The next phase should focus on turning high-level principles into concrete oversight that balances innovation with societal trust and protection.

Success here would position Japan not just as a technology adopter, but as a rule-maker in the digital economy.

What the next government should prioritise in year one

To capture this opportunity, Japan must shift its focus to people, institutions, and building public trust.

Make AI adoption and skills central to economic strategy – Integrate AI literacy, reskilling, and enterprise deployment into mainstream labour and economic policy, in line with the AI Basic Plan.

Accelerate digital pilots across regions – Use local governments and rural areas as testing grounds for AI, mobility, and automation solutions.

Strengthen coordination between digital policy and economic security – Break down siloed policymaking and build a unified, strategic digital framework.

A choice beyond the election

Japan has the technological capabilities and social foundations to succeed. What is needed now is to make a bold choice in its policy direction and implementation at scale. With the right decisions, Japan can turn its demographic challenges into opportunities for innovation, resilience, and inclusive growth.