Japan's Ministry of Economy, Trade and Industry (METI) is making a major push into generative AI with its 2026 fiscal year budget proposal. The ministry plans to allocate approximately 300 billion yen in related expenses, marking the first step in a five-year, 1 trillion yen program to support domestic AI development.

As global AI development competition intensifies, Japan finds itself lagging behind the United States and China. METI's strategy aims to reverse this situation through public-private partnerships to accelerate the development of domestically-produced AI foundation models.

SoftBank and Over Ten Companies to Establish New AI Venture

At the core of Japan's domestic AI development initiative is a new company to be established through investments from over ten Japanese firms, including SoftBank and Preferred Networks. The company is expected to launch in spring 2026, with plans to involve approximately 100 engineers.

The new venture targets approximately 1 trillion parameters, an indicator of AI performance. This represents Japan's ambition to develop large-scale AI models at the "1 trillion parameter" level, which is becoming the global standard. Development will involve mass procurement of high-performance semiconductors from NVIDIA to build large-scale computing infrastructure.

SoftBank plans to invest 2 trillion yen over six years starting in fiscal 2026 for data centers used in AI learning and development. Data centers in Tomakomai, Hokkaido and Sakai, Osaka are being considered as candidate sites.

Leveraging Manufacturing Strengths Through Physical AI

A particularly noteworthy aspect of this support initiative is the development of "Physical AI," technology that combines AI with robotics to autonomously control machinery in manufacturing settings.

Japan's manufacturing sector, where the country holds competitive advantages, has accumulated valuable industrial data over many years. However, if this data flows to overseas AI companies, Japan risks losing its competitive edge. Driven by this concern, METI aims to utilize domestic industrial data to develop Japanese AI that can be deployed across various industries according to their specific needs.

Support will be provided in stages rather than as a lump sum. The government will conduct annual reviews of development progress and provide additional investment when technical standards are deemed to have been met. The "GX Economic Transition Bonds" are being considered as a funding source, given the energy-efficient nature of the AI being developed.

10 Trillion Yen Support Framework for AI and Semiconductors Over Seven Years

This generative AI support is part of a larger initiative. Based on the "AI and Semiconductor Industrial Base Strengthening Framework" formulated in the November 2024 economic package, the government plans to provide over 10 trillion yen in public support over seven years through fiscal 2030.

This aims to stimulate over 50 trillion yen in public-private investment over ten years and generate approximately 160 trillion yen in economic ripple effects. As the semiconductor and AI sectors are critical to economic security and beyond the capacity of private companies alone to adequately invest in, the government is demonstrating a long-term fiscal commitment.

Continued Advancement of Next-Generation Nuclear Reactor Development

In the energy sector, budget allocation continues for next-generation innovative reactor development. Support using GX Economic Transition Bonds continues for demonstration reactor development of both fast reactors and high-temperature gas-cooled reactors.

Mitsubishi Heavy Industries has been selected as the core company for fast reactor development and is conducting conceptual design work for sodium-cooled tank-type fast reactors from fiscal 2024 through 2028. Mitsubishi Heavy Industries is also responsible for high-temperature gas-cooled reactors, which are being developed as next-generation reactors with superior inherent safety features and diverse heat utilization capabilities.

These next-generation reactors are positioned as essential technologies for achieving both carbon neutrality and energy security.

Government-Wide AI Utilization Initiative

Prime Minister Sanae Takaichi announced on December 19 at the AI Strategy Headquarters that the government would invest over 1 trillion yen in AI development and utilization. The government-dedicated AI "Gennai" will be made available to over 100,000 government employees from May 2026, with plans to eventually extend this to some 180,000 employees across all ministries and agencies.

Additionally, the government plans to expand the AI Safety Institute (AISI), which evaluates AI safety, from its current staff of approximately 30 to 200 people, matching the scale of the UK's organization.

Balancing Industrial Competitiveness and Economic Security

METI's 2026 fiscal year budget proposal represents a major commitment to two critical areas: generative AI and next-generation nuclear reactors. In AI, Japan aims to leverage industrial data accumulated through manufacturing to catch up with the US and China. In energy, the country is advancing technology development to balance decarbonization with stable energy supply.

Whether these investments bear fruit will significantly impact Japan's future industrial competitiveness and economic security.

In Japan, large-scale investments in AI development through public-private partnerships are gaining momentum. How is your country approaching AI development and next-generation energy technologies? We'd love to hear your perspectives on the role of government and collaboration with private companies.